Under normal conditions, forecasting the performance of the upcoming housing market uses recent data about the activity over the last few years. New home starts, price increases, days on market and the strength of the local employment all factor into the next year’s predictions.
The new year may be a bit different, however, since the changes to the federal tax code target the deductions that historically make homeownership so advantageous. Over 2018, experts predict that sales in the highest priced segments may slow in response to the new tax code and probable interest rate hikes.
Anchored by military and manufacturing employment, there aren’t any foreseeable bumps in the road for the Charleston economy during 2018 that will affect the housing market.
Fed watchers expect the Federal Reserve to raise interest rates during 2018 that will bump up mortgage interest rates from almost four percent to five percent. Such an increase will cool the housing market across the board.
The Housing Market
After a decade of solid recovery, Charleston’s housing market may start to slow, but not for reasons associated with the health of the housing market or the local economy. The impact of rising interest rates and the tax law changes are more likely to inhibit sales than local conditions.
In 2017, the housing market statistics for greater Charleston indicate a robust housing market. The days on market fell from 60 in 2015 to 58 in 2016, and averaging 55 days in 2017. The months of inventory have been declining as well to just 3.3 in November 2017, compared to 4.5 during November 2016.
The median sales prices rose from $240,000 to $250,000 in a year’s period starting in November 2016. The average price stood at $321,015 in November 2016, and increased to $339,008 in November 2017. The large disparity between the median and average values indicates that the majority of homes in the market have values around $250,000, but there are a few homes priced significantly higher that push the average a bit beyond the median.
While interest rate changes aren’t yet clear, the fact that the tax code for 2018 changed for homeowners is certain. Most experts expect the housing market to slow, especially in locations with high end primary and second homes. Coastal South Carolina and Charleston has its share of both kinds, and under the new tax laws, it may be vulnerable to these corresponding new decisions.
With caps on mortgage interest and state and local taxes, homeownership will be less appealing to first time buyers, especially millennials. Various studies have found that this generation is still somewhat shy about investing in real estate because they grew up and formed identities during the housing recession of the 2000s.
Another buyer segment that may shrink because of the tax code change is the second home market. The cap on the mortgage interest rate deduction, set at $750,000, covers both primary and secondary homes. This may inhibit some of the discretionary buyers from owning multiple properties.
Property taxes in the Charleston area are two percent higher for second or vacation homes than the rate for primary homes. Add that to the cap on state and local tax deductions of $10,000, and discretionary buyers may buy less expensive homes or possibly even consider areas other than Charleston.
Each person’s situation is different, and if you’re attempting to determine if 2018 is a good year for you to make a move in housing, you may want to consult with your accountant and a real estate agent. In the end, real estate will likely remain one of the best investments for wealth building and personal enjoyment.