Blog

May
30
Even after tax reform, homeownership still beats renting

The spring home-buying season is underway, but there have been a plethora of changes within this last year. "Congress has curtailed tax incentives to purchase a home, and mortgage rates and home prices are up. Yet for most folks with a stable job, buying a home is still better than renting." The new tax law has doubled the standard deduction to $24,000 for couples and caps their deductions for state and local taxes at $10,000. Those combine to greatly reduce the tax incentive to own a home – the share of homeowners who will itemize deductions and list mortgage interest and property taxes is estimated to fall from 44 percent to 14 percent.



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Most homebuyers have more disposable income to pay mortgages. In their take home pay, a higher standard deduction compensates them for not taking interest and property tax deductions, and lower rates overall actually boost most taxpayers' buying power.



Many economists are estimating that this will lower purchase offers enough to reduce median housing prices by nearly 4% in more expensive cities but that has yet to become apparent in the data. In the rather "hot" markets, using New York for example, foreign buyers, who for many reasons pay cash and are simply parking wealth in the United States, have greatly contributed to elevating prices. The United States personal income tax laws have had few consequences for that behavior. "The Freddie Mac" average for a 30-year fixed-rate mortgage is currently about 4.6 percent – up from about 4 percent a year ago – and this significantly affects affordability. For a $300,000 mortgage, that adds about $150 to monthly payments, but landlords are paying more to finance apartment buildings too and that gets factored into rents. Whether it pays to own a home still comes down to how long you can reasonably expect to stay in the house, because closing costs, Realtors' fees, and the like significantly raise the initial cost of owning a home – even if you can roll these costs into the mortgage balance to stretch those out.




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