What matters most, higher interest rates or property deductions?
Great outlook on interest rates, the federal reserve is widely predicted to raise rates 0-1 time this year. Last year the federal reserve raised rates 4 times. At one moment in the market last year 30 yr. mortgages were as high as 5.25%. With recent predictions, the market for 30 yr. mortgages have cooled back down to the low 4 percents.
Soft National Housing Market
One reason the federal reserve has decided not to raise rates is because national sales have not kept up with job gains and population growth. Home inventories have started to rise.
Inflation Fear Declining
According to Lawrence Yun, NAR Cheif Economist, current inflation is at a 2 year high at 2.4%, but the federal reserve is assuming a drop in inflation under 2%. As a result of this assumption, we see approved home sales in the future outlook. For every 1/2% drop in the 30 yr. mortgage market we can expect an extra 200,000 homes sold based on historical performance.
New Limit On Mortgage and Property Tax Deductions
With the new tax reform, there will be a limit on mortgage and property tax deductions. Fortunately, most Americans, approximately 95% will still be able to deduct there mortgage interest and property taxes under the new tax reform. The 5% of Americans that can no longer deduct these items makes home ownership more costly. For these homeowners, lower interest rates are much more important because this is the only area to make up the loss of mortgage interest and property tax deductions.
Great News Real Estate Investors and The Savvy 5%
All mortgage interest and property taxes are fully deductible as bona fide business expenses. Hint: For those of you who are amongst the 5% who loses their deductions. Think about turning your home into a rental! You have to be a little savvy and make sure your home rental is set up correctly, but there is no reason you should be missing out on your deductions!
Ryan E. Shilow
A Master of Real Estate
Johns Hopkins Carey Business School
"For more information or to request a consultation, please contact me directly any time."