If state and local tax (SALT) deductions are eliminated by the tax bill currently wending its way through Congress, expect to see migration kick up as people move from higher-tax states to lower-tax states. New 2018 predictions from real estate brokerage Redfin anticipate high-tax states such as California, New York, New Jersey, Maryland, Massachusetts and Illinois could take a serious hit if they lose the SALT tax deduction.
In a Redfin survey, a third of respondents said they would consider relocating to a different state if deducting SALT was no longer an option. This would only exacerbate trends Redfin’s migration data is already seeing occur, with many people looking to relocate from expensive coastal cities to more affordable metros such as Sacramento, Phoenix, and Atlanta.
But while many homebuyers might be looking to move to a different state if the SALT deductions vanish, they might have a hard time finding a new home once they get there. Both the House and Senate versions of the tax bill include changes to tax deductions for homesellers. Currently, single homeowners can deduct $250,000 of sale proceeds from capital gains taxes, so long as they’ve lived in their current home for two out of the five previous years. Couples can deduct up to $500,000 if they meet the same standard. However, the new proposal would increase that from five years to eight years. This could convince some sellers to hunker down and wait until they meet that qualification. With housing inventory already tight around the country, this could mean even fewer homes on the market.
On a broader scale, Redfin also predicts that homes will sell even faster in 2018 than they have this past year. “The 2017 housing market was fast, with 25 percent of homes selling in two weeks or less during the peak of the buying season, and nearly 1 in five homes (19 percent) off-market in less than a week,” said Redfin. “We expect 2018 to be even faster.”
Mortgage payments are also expected to increase in 2018. With the Federal Reserve shrinking its asset portfolio, Redfin expects mortgage payments to increase at the highest rate in a decade. “The combination of higher home prices (6+ percent) and higher interest rates means mortgage payments will be higher in 2018 for the same home,” said Redfin. According to Corelogic, monthly payments of principal and interest rose 13 percent in 2017 compared to a year prior. Redfin predicts they may climb as high as 15 to 20 percent in 2018.
You can read all of Redfin’s 2018 Housing Market Predictions by clicking here.