Katie Bearup and Aspen Moraif
Home prices have seen a consistent increase since 2012, however, tax and mortgage rates impacting the price of purchasing new homes will likely level these rising prices. Home prices began decreasing in 2006, and declined with further speed during the 2008 recession. Not until 2012, when the economy began to heal, did home prices take un upward turn, and they have yet to slow in significant ways since.
Just in the first month of 2018, there was a 6.2% rise in home prices. Data for the month of January is the only data available for the year 2018 so far.
Home prices are growing at twice the speed of incomes, consequently making housing purchases increasingly difficult. Regions experiencing the steepest increases in housing prices are in the West, with Seattle experiencing a 12.9% increase, an 11.1% increase in Las Vegas, and a 10.2% increase in San Francisco. Even prices for starter-homes are rising, with the low price-tier home prices growing by an average of 10.6% over the last 12 months, compared to all homes in the market at 6.8%, making it hard for millennials to enter into the market.
The new tax law passed in December of 2017 negatively impacts mortgage interest-deductions, and has consequently decreased the incentive to own a home, with renting a home becoming more, or equally as, attractive. Additionally, the current mortgage rate is a steep 4.45%. New residual investment is driven by mortgage rates, so a hit will be taken to consumers investing in new homes. This new law, paired with already high mortgage rates, makes buying homes less affordable, consequently decreasing the appeal of purchasing a house. Though the impact of the tax and mortgage rates has yet to take effect, they will likely decrease the demand for houses for the remainder of the year and cause the price of homes to eventually decrease to meet the price demand of the buyers.
After being seasonally adjusted, the national index rose 0.5% month-over-month.
- Kusisto, Laura. “Home Prices Continued to Rise in January.” The Wall Street Journal, Dow Jones & Company, 27 Mar. 2018.