2017 has been a wild ride for real estate. Housing prices seem to have yet again spiraled out of control. As expected, no one can predict the effects of housing supply. Lastly, the whole “Internet of Things” fad looks like it is now here to stay.
2018 will be yet another wild year for real estate. Here are our top five real estate trends we recommend you keep a close eye on as the new year progresses.
Trend 1: Tax Reform
We have our eyes on legislation changes in 2018. Trump’s newly proposed federal income tax plan will impact the real estate industry in several ways.
Our current tax plan has seven tax brackets. Trump’s federal income tax plan will cut this down to three, further lowering income tax rates. The top bracket will have a 35 percent tax compared to the current 39.6 percent. The middle rate will have a 25 percent tax compared to the current 28 percent. The lowest will have a 12 percent tax, down from 15 percent.
The income ranges within these new tax brackets were not specified.
Assuming Trump’s plan will be derived from his candidacy plan, it is estimated the 12 percent bracket will fall within an income range of $0 to $50,000; 25 percent fall within $50,001 to $150,000; 35 percent fall within $150,000 or more. For the most part, your average take home pay will increase from this Trump tax plan.
The biggest change in the tax plan is the new policy on deductions. The plan eliminates most types of itemized deductions, which include state and local tax payments. This means property taxes as well.
"This proposal recommends a backdoor elimination of the mortgage interest deduction for all but the top 5% who would still itemize their deductions."
National Association of Realtors® President
When this is combined with the elimination of state and local tax deductions, it can actually be a tax increase on middle-class homeowners. In the long run, this could make it more expensive to own a home and may drive up the bottom line.
Recently, a provision was added to the GOP tax plan that would allow real estate investors to take advantage of a new tax break. This tax plan provides a 20 percent deduction on taxable income for pass-through companies.
A pass-through is a special type of corporate structure that lets firms avoid the double taxation of paying corporate and individual taxes. The taxes are only applied at the individual level.
Real estate developers would love for this plan to pass because they would be the ones profiting the most.
Instead of paying the regular income tax rate, as much as 37%, a landlord could create a limited-liability corporation for their rental and pay the pass-through rate of 20%. This can incentivize landlords to hold on to properties longer. Investors will most likely purchase more homes and convert it to rentals.
Trend 2: Inventory shortages
Some say the housing shortage is one of the reasons for the current high housing prices. This shortage in housing inventory is driven by the sheer demand. As demand for affordable housing has increased, the supply for affordable housing as not kept up.
2018 will be a test for the housing industry to see if the storage of housing inventory will began to shrink or grow.
Trend 3: Increase in millennial renters
Decades ago the American dream was to get married, buy a home and start a family by the age of 30. For some, this is still their goal, but a trend has shifted toward a record high of renters in America for 2016.
CoreLogic found that 60 percent of rental housing applicants between 2011 to 2015 were millennials. Of these applicants, 48 percent of them had student loan debts. The trend of millennials who had student loan debt results in renting for longer periods.
Millennials who are already burdened by finding a well paying job and paying student loan debt may not want to accumulate a mortgage debt. The answer is clear. Millennials are driving the demand for rentals. This will be an interesting trend to monitor in 2018 as the housing crisis continues to mature.
Trend 4: Baby boomers and Millennials will drive home design
Our fourth real estate trend we recommend on keeping an eye on is home design. For the past few years, baby boomers and millennials are driving home design, the same way they are driving the housing market.
Baby boomers who are downsizing or have discretional income to spend will most likely spend it on remodeling their home. Millennials who are moving from rental unit to rental unit every year will be looking for homes that fit their taste, therefore landlords will remodel their units to appeal to millennials. Generation X homeowners who are looking to settle down and establish roots in their home are not entirely in the market for a remodel, therefore will not be as influential in-home design.
Trend 5: Technology and Real Estate
2017 was the year many pioneers in Real Estate began to embrace technology. 2018 will be the year technology will cement itself within Real Estate. RealtyShares raised $29 million for commercial real estate investing. In June, Redfin officially filed for IPO. HouseCanary, a real estate valuation data and analytics startup, raised $33 million after being back by Eric Schmidt and Kobe Bryant. Onerent, Inc. a tech enabled rental solutions startup, surpassed 1,200 homes under management in less than 3 years.
Real Estate companies who are welcoming technology as a resource for adapting to the industry now see more positive results than ever before.
The top agents are beginning to use technology to make their business more efficient. The one thing every agent will tell you they hate the most are high costs. Once agents realize technology systems will drive down their fixed costs, technology will be cemented in the industry. The laggards who do not adopt these trends will soon dissolve.
What are your Real Estate trends you are looking out for in 2018? Comment below and have your opinion featured on our blog!