Home Values Tag

With the Tax Reform bill now signed into law, many homeowners will find that this important piece of legislation restricts
some of the benefits they have enjoyed from owning a home. Although the impact will mainly hit the higher end of the
housing market, there are some potential tax deductions that could impact the way they structure their mortgages.
Let’s look at what the changes could mean for current and future homeowners:
Lower Mortgage Interest Deduction
In the past, homeowners have been able to deduct interest on up to $1,000,000 of mortgage obligation.
For homes purchased now and in the future, this limit will be reduced to $750,000. For those who already
owned their homes at the time of the Tax Reform bill passing, they will be grandfathered into the prior
amount allowed.
Impact: Since this portion of the bill only impacts high valued homes, we anticipate this will have little impact on the
overall housing market. People looking at mortgage balances of over $750,000 will likely still purchase homes,
even if they lose the deduction on up to $250,000 of the mortgage balance.
Loss of Tax Benefit for Home Equity Loans
With property values moving higher, there has been a rush of people taking out home equity loans to make
use of their increased available equity. Under old tax rules, a homeowner was able to deduct interest on
up to $100,000 of the balance of an equity loan. This tax loophole has been eliminated.
Impact: We all remember back in 2008 and earlier when homeowners were taking out home equity loans to
purchase boats, make improvements, take vacations or just spoil themselves at the mall. This created major
improvements to the amount of money flowing through the U.S. economy. With values reaching new highs, this
trend has started once again.With the tax advantage no longer available, it will likely deter some people from
taking out home equity loans. Therefore, we could see a negative economic impact. People with home equity
loans will likely consider rolling them into a primary mortgage, which may create more tax advantage and
interest rate stability long term.
Limit on Property Tax Deduction
One reason that has prevented some homeowners from protesting their property taxes is that they have
received 100% of the property tax payments as a write-off from their taxable income. Under the new
law, the property tax and state income tax write-offs have been limited to a combined $10,000 reduction
from taxable income.
Impact: In Utah, the state income tax rate is 5%. This is a flat tax, so there are no itemizing deductions on
a Utah state tax return. If a homeowner has property tax of $2,500, they would be allowed to have $150,000
in gross income and still receive the full tax savings of owning a home. Therefore, the impact will mainly be
for higher income earners.
Given that the average Utah state income tax collection is less than $1,000 per year, most residents will not
be impacted.

2016 was a great year for the Utah Housing Market. According to CoreLogic, a well-respected source for housing market statistics, the average home in the State of Utah grew at an 8% annual pace over the last year. Further, it states that home values have nearly recovered all of their losses since the Housing Crisis of 2008. This strong report makes Utah one of the top appreciating Housing Markets in the country, which is great news for those who currently own a home.

With interest rates moving higher over the past few months, some are worried that this will have an adverse impact to the future value of homes. Although there is validity in the concern, the longer-term impact of rising rates has often proven to coincide with high levels of home value appreciation. Let’s take a look back on history to help form a conclusion.

The graph below shows four points in time when mortgage rates experienced rapid rates of increase and compare those times with their annualized rates of home value appreciation over the same period. As you can see, not only did home values remain in growth mode, they often experienced attractive improvements to home values. TRUST E D · R E S P E C T E D · LOVED

Traditional economics support the theory that as the cost of a mortgage increases with higher rates, the value of homes will fall to bring the relative cost back into balance. However, when values are rising because of growing incomes and a stronger job market, home values have room to move higher even as rates increase. Given the current strength of the housing market, the current level of wage growth is more than enough to sustain a reasonable rate of home value appreciation. Utah’s Unemployment Rate is currently at 3.2%, which is considered “full employment.” Further, the outlook on the job market is expected to remain strong for years to come; making Utah one of the greatest places to live.

Utah Home Values 2017

Although mortgage rates aren’t anticipated to experience a significant increase in 2017 (see next month’s 2017 Market Forecast), some experts and media pundits are calling for a drop in home values this year. Although we anticipate a slower pace of growth in 2017, we still see at least a growth rate of 4.5%. This is a healthy rate of appreciation and a level that is sustainable for the foreseeable future.

Of course, there is no way to say for sure what will happen, but it doesn’t appear likely that higher rates will have a significant negative impact to home values here in Utah.

High rates of home appreciation provide a tremendous opportunity to increase net worth. If you plan to move-up in the near future, you may want to make the move sooner rather than later. An extra $100,000 in home value, increasing at a rate of 4.5% could add an additional $14,000 to your net worth over the next three years. This could also be achieved by purchasing an investment property or a second home. Also, if you have millennial children, encourage them to become homeowners early in their adult life. Home ownership is a determining factor of long term financial health and security. Starting early is the key.

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