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Homeownership rate reaches highest level in three years

The national homeownership rate reached its highest level since the fourth quarter of 2014, increasing slightly in the last quarter of 2017, according to the Quarterly Residential Vacancies and Homeownership report from the U.S. Census Bureau.

The homeownership rate remained statistically unchanged, inching up to 64.2% in the fourth quarter. This is up from 63.7% the year before and 63.9% in the third quarter.

The chart below shows the homeownership rate has been steadily rising since 2016, however it remains historically low.

Click to Enlarge

homeownership

(Source: U.S. Census Bureau)

“After bouncing around near 50-year lows for the past few years, the national homeownership rate finally seems to be gaining sustainable, meaningful upward momentum,” Zillow Senior Economist Aaron Terrazas said. “The fourth quarter of 2017 was unseasonably strong, driven by buyers determined to make a deal in a highly competitive market.”

“And for would-be buyers struggling to save for a down payment or figuring out how to make the monthly mortgage math pencil out, changes in the tax code that potentially put more money in their pockets could be the push they need to move out of an apartment and into a first home,” Terrazas said.

Among Millennials, the homeownership rate ticked up slightly from 35.6% to 36%. Among older generations, the homeownership is significantly higher at 75.3% for those aged 55 to 64 years and 79.2% for those aged 65 years and older.

“What’s even more positive news for the housing market is that much of the increase in the homeownership rate over the past year has come from 18 to 44-yearolds,” Trulia Chief Economist Ralph McLaughlin said.

“Increases in homeownership amongst these two cohorts are a sign that the scars of the Great Recession are finally starting to heal, and provide a source of optimism that the owner-occupied segment of the housing market will continue to grow throughout the remainder of this economic cycle,” McLaughlin said.

Among the non-Hispanic white population, the homeownership rate increased from 72.5% in the third quarter to 72.7% in the fourth quarter. However, homeownership rates for other ethnicities are much lower.

The black homeownership rate increased 0.1 percentage point, but remains far below average at 42.1% in the fourth quarter. The Hispanic homeownership rate saw the highest increase, rising .5 percentage points to 46.6%.

This growth among the Hispanic population continues the trend outlined last year by the National Association of Hispanic Real Estate Professionals which showed the Hispanic homeownership rate accounted for 74.9% of the total net growth in the overall homeownership rate in the U.S.

The national homeowner vacancy rate decreased 0.2 percentage points from last year at 1.6%, while the national vacancy rate for rental housing remained unchanged at 6.9%.

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Case-Shiller: Home prices rising three times the rate of inflation

Home prices continued to increase in November, rising at a faster pace than the previous month, according to the latest report released by S&P Dow Jones Indices and CoreLogic.

The S&P CoreLogic Case-Shiller U.S. National Home Prices NSA Index, which covers all nine U.S. census divisions, reported an increase of 6.2% in November. This is up from the annual increase of 6.1% the previous month.

The 10-City Composite held an annual increase of 6.1%, up from 5.9% the previous month. The 20-City Composite increased 6.4% year-over-year, up from the annual increase of 6.3% in October.

“Home prices continue to rise three times faster than the rate of inflation,” said David Blitzer, S&P Dow Jones Indices managing director and chairman of the index committee. “The S&P CoreLogic Case-Shiller National Index year-over-year increases have been 5% or more for 16 months; the 20-City index has climbed at this pace for 28 months.”

The chart below shows home prices continue to near all new highs, but have yet to surpass their 2006 levels.

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Case-Shiller

(Source: S&P Dow Jones Indices, CoreLogic)

Some cities saw higher increases than others. Seattle, Las Vegas and San Francisco reported the highest annual gains among the nation’s top 20 cities with increases of 12.7%, 10.6% and 9.1% respectively.

And one factor stands above the rest as being the main factor to the continually rising home prices.

“Given slow population and income growth since the financial crisis, demand is not the primary factor in rising home prices,” Blitzer said. “Construction costs, as measured by national income and product accounts, recovered after the financial crisis, increasing between 2% and 4% annually, but do not explain all of the home price gains.”

“From 2010 to the latest month of data, the construction of single family homes slowed, with single family home starts averaging 632,000 annually,” he said. “This is less than the annual rate during the 2007 to 2009 financial crisis of 698,000, which is far less than the long-term average of slightly more than one million annually from 1959 to 2000 and 1.5 million during the 2001 to 2006 boom years. Without more supply, home prices may continue to substantially outpace inflation.”

Monthly, the National Index increased 0.2% before seasonal adjustment in November. The 10-City and 20-City Composites increased 0.3% and 0.2% respectively before seasonal adjustment.

However, after seasonal adjustment, the National Index increased 0.7% from the previous month in November while the 10-City Composite increased 0.8% and the 20-City Composite increased 0.7%.

“Looking across the 20 cities covered here, those that enjoyed the fastest price increases before the 2007 to 2009 financial crisis are again among those cities experiencing the largest gains,” Blitzer said. “San Diego, Los Angeles, Miami and Las Vegas, price leaders in the boom before the crisis, are again seeing strong price gains.”

“They have been joined by three cities where prices were above average during the financial crisis and continue to rise rapidly – Dallas, Portland, Oregon, and Seattle,” he said.

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Trulia: Rent prices jumped 3.1% in 2017

Does it feel like the rent is too damn high? That’s because, according to Trulia, it is.  

Trulia’s latest rental analysis shows median rent increased 3.1% in 2017 with much higher increases experienced in four major metro areas.

Comparing 2016 to 2017, the biggest median rent increases were experienced in already strained housing markets. Tacoma, Washington, saw the largest increase, jumping 8.8% from the 2016 median rent of $1,650 to $1,795, while Sacramento’s median rent increased 8.3% from $1,750 in 2016 to $1,895 last year. Milwaukee and Los Angeles both saw 8% increases in median rent, based on Trulia’s estimates.

Additionally, the company’s analysis shows the markets in the West have led the country in rent increases, as seven of the Top 10 metros experiencing the biggest rent increases are located in the Western U.S.

Take a look at Trulia’s graph showing the increases: 

trulia rent
(Click to enlarge, image courtesy of Trulia)

Overall, rent has increased 19.6% since the end of 2012, the year housing prices bottomed, Trulia explained in its blog post, adding that rent prices across the country mostly have trailed housing price increases.

California rents increased the most since 2012 with the cities of Oakland, San Jose, San Francisco and Sacramento ranking in the Top 10 for rent increases during the five-year period, Trulia wrote.

From Trulia’s analysis:

“Rising rents may come as somewhat of a surprise. After all, the number or households renting has been declining while homeownership increased, and rent increases have slowed somewhat in the last year compared to the last five years.

Since the end of 2012, the year housing prices bottomed amid the crash, rents have increased 19.6% nationally. But again, if you’re unfortunate enough to live in a few hot housing markets, you’re feeling more pain. Places like Cape Coral-Fort Myers, Fla., and Oakland, Calif., have seen increases of more than 50% since the end of the Great Recession.”

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New home sales finish 2017 at highest level in a decade

Earlier this week, a report from the National Association of Realtors showed that 2017 was the best year for existing home sales since 2006.

As it turns out, existing homes weren’t the only ones selling a recent record level last year.

New data from the Census Bureau and the Department of Housing and Urban Development shows that there were more new homes sold last year than in any year since 2007.

The latest data from the Census Bureau and HUD shows that there were an estimated 608,000 new homes sold in 2017. That’s up 8.3% from 2016’s total of 561,000.

That’s also higher than every other year since 2007, as seen in the chart below.

New homes sales data by year 2017

(Click to enlarge)

While last year’s total is the highest in a decade, it still obviously pales in comparison to the early-to-mid 2000s.

Last year’s total could have been even higher, but December’s total of new homes sold came in well below November’s total.

According to the Census and HUD data, sales of new single-family houses in December 2017 were at a seasonally adjusted annual rate of 625,000, which is 9.3% below the revised November rate of 689,000.

On the positive side, December 2017’s total was 14.1% above the December 2016 estimate of 548,000.

Additionally, the report showed that the median sales price of new houses sold in December 2017 was $335,400, while the average sales price was $398,900.

The report also showed that the seasonally adjusted estimate of new houses for sale at the end of December was 295,000, which represents a supply of 5.7 months at the current sales rate.

Zillow Senior Economist Aaron Terrazas notes that the new home sales data is encouraging, but cautions that it’s not all sunshine and roses either.

“Today’s numbers are not the way we would have liked to see 2017 end for the new home sales market, but nevertheless the year overall showed meaningful progress. New home sales activity began to move noticeably upward toward the end of 2017, ending the year at levels comfortably above where they were when the year began,” Terrazas said.

“And despite the monthly drop in sales, inventory of new homes available for sale rose by the largest amount since April 2006, an encouraging sign. Still, it has proven to be a two-step-forward, one-step-back process in getting building activity to where it really needs to be,” Terrazas continued.

“Big gains in one month are often revised down in the next, and progress has been frustratingly incremental instead of really breaking through. Prior to the recession, new home sales levels regularly exceeded 1 million or more per year. Those are the kind of levels we need to get back to in order to make a meaningful dent in the inventory crunch facing the market and to ease some of the pressure off of beleaguered homebuyers,” Terraza added.

“And rather than the speculation that fueled last decade’s boom and bust, building at that level today would be more squarely addressing true, fundamental demand in a healthy way,” he concluded. “Builders are certainly aware of this demand, and are doing what they can to meet it – but rising land, labor and lumber prices aren’t helping. It may not look like much progress these net few months, but we’re very slowly getting there.”

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Amherst: Amazon’s HQ2 choice to drive local housing demand up to 25%

Real estate investment firm Amherst Capital Management released market commentary on Wednesday outlining the potential impact Amazon’s second headquarters could have on the already hot housing markets of the 20 cities being eyed by the ecommerce giant.

Last week, Amazon announced its shortlist of potential locations for its second headquarters, known as Amazon HQ2. Amazon said it expects to create as many as 50,000 “high-paying jobs” and invest more than $5 billion into its new headquarters.

The finalists include: Atlanta, Georgia; Austin, Texas; Boston, Massachusetts; Chicago, Illinois; Columbus, Ohio; Dallas, Texas; Denver, Colorado; Indianapolis, Indiana; Los Angeles, California; Miami, Florida; Montgomery County, Maryland; Nashville, Tennessee; Newark, New Jersey; New York City, New York; Northern Virginia; Philadelphia, Pennsylvania; Pittsburgh, Pennsylvania; Raleigh, North Carolina; Toronto, and Washington, D.C.

Amherst analyzed economic, demographic, and local residential real estate metrics and calculated that that HQ2 could significantly accelerate housing sales demand in already fast-growing metro areas.

The firm’s highlights point out that Pittsburgh has the potential to see the largest increase in demand, at 27%. Fast-growing markets, including Columbus and Raleigh, will see an acceleration in an already-high-growth metro area.

“The implications for each of these markets are tremendous. The Pittsburgh metro area has more than 2.3 million people, but census data shows that its population has seen a net decline for four consecutive years,” Amherst said in its analysis. “If Amazon places HQ2 in the Pittsburgh metro, the move has potential to cause a 27% increase in demand for homes for sale. This decision, along with ancillary moves of competitors, vendors, and other related companies could change the fortune of the metro area.”

The potential locations of New York, Chicago and Los Angeles will see only incremental gains in demand.

Amherst’s update explained that while the specific effects vary depending on the area in which HQ2 locates, the potential addition of 50,000 jobs will “impact government revenue via personal income and corporate taxes, and lead to increased demand on roads and school systems, and increased demand for housing. For example, if HQ2 locates in New York or Los Angeles, the relative effect on the local area will be smaller than if HQ2 ends up in Raleigh, NC, or Austin, TX.”

According to the data, the New York, Dallas, and Chicago markets are expected to receive the smallest gain in demand relative to their housing market size for single unit dwellings for sale from HQ2. Amherst said the addition of HQ2 to these very large metro areas would “incrementally strengthen the regional economy, but is unlikely to change the fortune of the area.”

The firm used a combination of economic, demographic, and local residential real estate metrics, to calculate the approximate expected annual increase in demand for single unit homes for sale. And its projections assume Amazon evenly divides hiring the projected 50,000 employees across five years. The chart below shows one-fifth of the expected increase in housing demand from HQ2 relative to 2016 full-year sales for each area, according to Amherst.

amherst chart

The firm concludes that wherever HQ2 is built, the metro area selected will see an increase in housing demand.

From the analysis:

Amazon’s decision to locate HQ2 in one of several areas has the potential for a wide range of outcomes. For areas like New York and Dallas, HQ2 would be another large company located in the metro area bringing incremental strength to the regional economy. For Pittsburgh, HQ2 may be able to change the fortune of the metro area and reverse its population decline. For fast growing areas like Columbus and Raleigh, HQ2 would simply accelerate the growth of an already-high-growth metro area. Whether small or large, the area in which HQ2 eventually locates will be set for a housing market bump.”

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Amazon pick for second HQ likely in overheating housing market

The moment we’ve all been waiting on baited breath for finally happened this week, as Amazon revealed the 20 finalists for its second headquarters, commonly referred to as Amazon HQ2.

According to CNN, Amazon received bids from 238 cities and regions throughout North America, all vying for their chance to be the online retail giant’s second home.

Amazon said that it expects to invest more than $5 billion and plans to grow its second headquarters into a “full equal” to Amazon’s current headquarters in Seattle. Amazon also expects to create as many as 50,000 “high-paying jobs” for the selected area.

But what else might come with that much corporate investment and new high-paying jobs? Higher home prices.

And for half of the 20 markets on Amazon’s shortlist, home prices are already on the verge of overheating.

The 20 markets on Amazon’s list are: Atlanta, Georgia; Austin, Texas; Boston, Massachusetts; Chicago, Illinois; Columbus, Ohio; Dallas, Texas; Denver, Colorado; Indianapolis, Indiana; Los Angeles, California; Miami, Florida; Montgomery County, Maryland; Nashville, Tennessee; Newark, New Jersey; New York City, New York; Northern Virginia; Philadelphia, Pennsylvania; Pittsburgh, Pennsylvania; Raleigh, North Carolina; Toronto, and Washington, D.C.

Of those, 19 are in the U.S., and a newly released analysis from CoreLogic shows that home prices in 10 of those 19 U.S. markets are already overvalued.

CoreLogic monitors the health of the housing economy through historic home price changes and other market conditions including sustainability of prices in the market, referred to as the CoreLogic Market Condition Indicators.

The MCI analysis defines an “overvalued” market as one where home prices are at least 10% higher than the long-term, sustainable level, while an undervalued housing market is one where home prices are at least 10% below the sustainable level.

According to CoreLogic’s report, home prices in Austin, Dallas, Denver, Los Angeles, Miami, Montgomery County, Nashville, New York City, Northern Virginia, and Washington, D.C. qualify as “overvalued” right now, with home prices above 10% of the sustainable level.

On the other hand, home prices in Atlanta, Boston, Chicago, Columbus, Newark, Philadelphia, and Raleigh are all categorized as “normal” in CoreLogic’s view.

Meanwhile, home prices in Indianapolis and Pittsburgh are “undervalued.”

CoreLogic report on Amazon cities

(Click to enlarge. Image courtesy of CoreLogic.)

Regardless of which city Amazon picks (and the retail monolith has given no further indication of which one of the 20 markets it is going to choose), home prices are expected to rise in the winning city.

And for those markets where prices are already arguably too high, being the winning city may be a bit of a housing catch-22, according to CoreLogic Chief Economist Frank Nothaft.

“As leaders at Amazon continue to narrow their location choices, the housing situation is an important consideration,” Nothaft said.

“Some of the contenders have home price increases that are trending higher than the national average of 6%,” Nothaft said. “Denver and Nashville lead the pack with home price increases at more that 8%, but CoreLogic research indicates that these markets are overvalued right now. Adding a job creator like Amazon would add further housing demand and upward pressure to housing costs.”

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Monday Morning Cup of Coffee: Construction boom could ease affordability in 2018

Monday Morning Cup of Coffee takes a look at news coming across HousingWire’s weekend desk, with more coverage to come on larger issues.

To probably no one’s surprise, affordable housing continues to worsen in buyer and rental markets.

The average national rent increased 2.5% to reach $1,359 in 2017. This is up 24% from 10 years ago, according to a new study by RENTCafé.

This increase means Americans paid an average $400 more in rent in 2017 than the previous year, the study showed.

And in some areas these increases were much higher. In Sacramento, California, for example, rent prices increased 8.8%, while in smaller cities such as Odessa, Texas, and Midland, Texas, renters paid a total of $3,400 more in 2017 than they did in 2016.

But this could take a positive turn in 2018 as many experts continue to predict the market is shaping up for a construction boom.

The construction industry added about 30,000 jobs last month, according to the U.S. Labor Department, making 2017’s total 210,000, a 35% increase from 2016. 

Of course, all of that could change if the administration continues to crack down on illegal immigration.

Over the weekend, President Donald Trump signaled that Democrats are not working with Republican demands in order to find a compromise for Deferred Action for Childhood Arrivals.

With one flippant tweet, the president told an estimated 700,000 young immigrants who were brought to the U.S. as children that their future is uncertain.

Back in September, Trump announced he was rescinding the DACA program, giving Congress a six-month deadline to fix the problem.

However, this weekend also brought a sliver of hope for DACA immigrants as the federal government announced Saturday it will begin accepting renewal requests once again.

The decision to accept applications again came after a federal judge in California issued a nationwide injunction Tuesday, ordering the administration to resume the DACA program as a lawsuit against its recension makes its way through court.

Previously, HousingWire explained how the administration’s immigration policy will affect housing, including making immigrants less likely to buy a home due to the uncertainty of their future, and a significant decrease in the construction labor force.

Congress will continue to debate immigration reform, and the fate of DACA recipients has yet to be determined, but of course, perhaps Trump simply thinks they should return to their “shithole countries.”

Pardon the language, but I am, after all, using the president’s exact words.

But in more positive news, it is now becoming much easier for borrowers to get a mortgage, according to the Urban Institute’s Housing Finance Policy Center’s latest housing credit availability index.

Mortgage credit availability increased from 5.1% to 5.6% in the third quarter of 2017, the highest level since 2013.

The chart below shows even as credit availability rises, borrower risk remains significantly below its historical levels.

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risk

(Source: Urban Institute)

The HCAI measures the percentage of home purchase loans that are likely to default, go unpaid for more than 90 days past their due date. A lower HCAI indicates that lenders are unwilling to tolerate defaults and are imposing tighter lending standards, making it more difficult to get a loan. A higher HCAI indicates that lenders are willing to tolerate defaults and are taking more risks, making it easier to get a loan.

The Urban Institute explained this increase was mainly driven by the credit expansions within the government-sponsored enterprise and government channels, thanks to higher interest rates and lower refinance volumes.

Later this week, HousingWire will bring you the latest news live from NEXT, a mortgage tech conference for women.

Until then, keep reading HousingWire and have a great week!

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Realogy appoints Dave Gordon as chief technology officer

Realogy recently announced the appointment of Dave Gordon as the company’s executive vice president, chief technology officer.

Gordon, who begins his role with the company on January 22, has more than 20 years of leadership experience in technology, innovation and business operations in the financial services industry and will report directly to Realogy CEO and President Ryan Schneider. realogy dave gordon

“Dave Gordon brings a strong business background with substantial expertise transforming and building leading-edge technology organizations, building digital products and recruiting great talent,” Schneider said. “He is an innovative leader who will be responsible for our technology transformation and working closely with Realogy’s other business leaders to help drive our aggressive change agenda.”

Prior to joining Realogy, Gordon served for the past three years as the U.S. chief technology and operations officer at BMO Financial Group, where he led the strategic technology, operations and data initiatives in the United States.

Before then, Gordon served in multiple officer roles at Promontory Financial Group from 2013 to 2015, including chief administrative officer and chief technology and information officer, where he led technology, facilities and human resources.

“I am excited to join Realogy and help lead the changes that will enable the company to fully leverage its technology and data scale and increase the use of analytics in an integrated manner across business lines,” Gordon said. “It’s a tremendous opportunity to work with Ryan Schneider and the Realogy leadership and technology teams as we focus on driving a technology transformation intended to improve business results.”

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HUD Secretary Ben Carson swears in four new department leaders

The U.S. Department of Housing and Urban Development enlisted four new top leaders who will assume key roles in the agency.

HUD explained these leaders are stepping up at the start of the year during a critical recovery period following last year’s devastating hurricanes.

HUD Secretary Ben Carson administered the oath of office to these individuals, who were recently confirmed by the Senate: Leonard Wolfson as assistant secretary for congressional and intergovernmental relations, J. Paul Compton as HUD’s general counsel, Suzanne Israel Tufts as assistant secretary for the office of administration and Irving Dennis as chief financial officer, all pictured below, from left to right with Carson standing in the center.

“Today, our bench got a lot deeper,” said Secretary Carson. “These four outstanding individuals bring substantial experience to HUD at a moment when our Department is being called upon to excel as we support millions of our fellow citizens recovering from Hurricanes Harvey, Irma and Maria.”

Click to Enlarge

HUD leaders

Compton will lead HUD’s office of general counsel which provides advice and services to all HUD programs and activities. OGC represents the department in litigation and enforcement actions, provides legal services in the development, preparation and presentation of the department’s legislative initiatives, has primary responsibility for the development of HUD program regulations, represents the department in multifamily finance transactions and assists in the development of HUD programs and policies.

Compton holds legal expertise in the areas of multifamily affordable housing finance, tax credit transactions and mortgage securitization. He is a former partner of the law firm Bradley Arant Boult Cummings, and is listed by Chambers USA as one of America’s leading business lawyers on issues related to banking, finance and regulatory matters. Compton also served as a legal advisor to the Alabama Affordable Housing Association, a trade organization for developers, property managers, lenders, investors and service providers for affordable housing.

Tufts will serve as assistant secretary, and will lead HUD’s Office of Administration tasked with delivering administrative support and customer service to HUD employees nationwide. As HUD’s chief administrative officer, Tufts will oversee the department’s human resources, contract procurement and training needs.  A New York-based attorney with extensive experience in turnaround management, Assistant Secretary Tufts served in operational roles in the public and not-for-profit sectors, including public housing authorities in New York state.  Tufts is an expert in the field of social programming in inner cities including microenterprises, education and women’s issues. She formerly served as president and CEO of the American Woman’s Economic Development Corporation, the nation’s first women’s entrepreneurship training center.

Wolfson will serve as HUD’s assistant secretary of congressional and intergovernmental relations, and will work as the principal advisor to the secretary, deputy secretary and senior staff on legislative affairs, congressional relations and policy matters affecting federal, state and local governments, as well as public and private stakeholders.

Prior to his service at HUD, Wolfson served as associate vice president of legislative affairs for the Mortgage Bankers Association, where he helped the real estate finance industry recover from the financial crisis by advocating for a return to safe and sustainable lending. He previously served as HUD’s general deputy assistant secretary for congressional and intergovernmental relations during the George W. Bush administration.

Dennis will serve as HUD’s chief financial officer, and is responsible for employing sound financial management practices across all of the agency’s program areas. Dennis will oversee the accounting, budget and financial management for the agency’s budget and appropriations including processing millions of transactions each year to support HUD’s mission.

Prior to his public service, Dennis was a global client service partner with Ernst & Young, where he worked with several large multinational public companies in various industries. He also serves on several not-for-profit boards and has been a member of various accounting-related organizations.

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Will tax reform harm the housing market?

For the most part, the latest tax reform will boost the average paycheck and do little to harm the housing market.

However, according to two recent expert reports, the devil is in the details.

Thomas Torgerson, co-head of Sovereign Ratings at ratings agency DBRS, said that for most households, tax reform should only have a marginal effect.

“Even in the more expensive metropolitan areas, DBRS estimates that most households with taxable income of less than $400k will see either minimal change or an increase in disposable income,” he wrote in a report today.

“Households with taxable incomes above $400k are likely to experience a decrease in disposable income, though the effects may be muted for households that are already subject to the Alternative Minimum Tax,” he added.

However, things change slightly in areas with higher than average state and local taxes, as well as the more expensive metros in the nation right now. The law caps SALT tax deductions at $10,000, so it’s possible some homeowners may need to move to more affordable areas.

Real estate valuation and data analytics service HouseCanary will soon release the following report: “Will tax reform change your housing plans? Hyper local analysis tells the tale” And in that report, provided early for the benefit of HousingWire’s readers, analysts at HouseCanary dug through mortgages from 2017 between $750,000 to $1 million, to see how many current households would be impacted by the new tax law.

They found, overall, the average estimated household impact in the top 50 MSAs will be $1,950 per year/$162.50 per month.

“In some parts of San Francisco, arguably the most expensive market in the country right now, the median home value is more than $1 million, so it’s fair to assume that the tax bill is going to have a more substantial effect in San Francisco than in parts of the country with much lower median home values,” the report states.

“Home buyers in those markets may need to reassess their spending levels, cut corners, or opt out of the market altogether if the homes they’re reaching to buy become increasingly unaffordable. They may look to more affordable neighboring communities and opt for a longer commute in order to achieve homeownership

— and then it’s only a matter of time before prices start to spike in those neighboring communities, too.”

The areas in red show where tax reform will hit households the hardest:

HouseCanary

“Smart buyers and investors will prioritize keeping their fingers on the pulse of neighborhoods and even block areas where they hope to own (or currently own) homes,” HouseCanary said.

According to the Torgerson DBRS report, disposable income is most likely to decline in higher income households with incomes above $400k and particularly above taxable incomes of $1 million, where lower tax rates are more than offset by the expected increase in taxable income due to the loss of SALT deductions.

“In high SALT areas, DBRS estimates the reduction in disposable income is likely to average 3% for taxable incomes between $400k and $1 million, and could exceed 7% at incomes beyond $20 million. However, housing decisions within this income segment are less likely to be constrained by a reduction in disposable income.

Moreover, many of these households are presently subject to the Alternative Minimum Tax.

If the deductibility of SALT is already effectively limited due to AMT, the changes will have less of an adverse impact on disposable income for some of these higher income households. Furthermore, many of these same households should benefit financially from corporate tax changes, either as owners of a pass-through business or simply due to gains already reflected in their stock portfolios.”

Here’s the summary of the DBRS tax reform analysis:

  1. Tax policy changes, even when directly tied to housing costs, affect demand for housing primarily through disposable income channels. The Tax Cuts and Jobs Act is likely to increase disposable income for the majority of U.S. taxpayers, including many taxpayers affected by the reduction in state and local tax deductibility.
  2. Higher income buyers may become more sensitive, at the margin, to the lack of deductibility of property taxes, particularly beyond income thresholds of $400k. However, many of these households have other assets (stocks, etc.), which may have already benefited from the expectation of lower corporate tax rates, and income constraints are sometimes a less important factor in housing purchases.
  3. A relative increase in the cost of homeownership could have adverse effects on housing prices in some markets. Particularly if combined with higher interest rates as a result of monetary tightening and a wider fiscal deficit, real estate prices could soften in more expensive areas.