What’s Affecting the Real Estate Market in 2018?

As we enter another busy home buying and selling season, it is important to know what is going on in the marketplace. What’s influencing buyers? How is the Realtor business changing? What implications does the new tax bill have on home owners?

Tax Reform Implications

The biggest topic of discussion is the new tax reform bill and its changes to home ownership. Some of the most important changes to tax laws include (check with your tax consultant/accountant):

  • A reduction in the amount of allowable interest deduction on mortgage amounts to $750,000 (including second homes, yachts, etc.) This only applies to mortgages borrowed after December 14, 2017; mortgages prior to that date are grandfathered in.
  • Preservation of the deduction for second homes to the combined $750,000 cap
  • Elimination of the deduction for home equity loans
  • Limitation of state and local taxes (SALT) to a $10,000 household limit per return
  • Reduction in estate taxes
  • Elimination of the alimony payment deduction, however, taxes on alimony received have been eliminated (making it easier to afford a mortgage)
  • Doubling of the standard deduction from $6,350 to $12,000 (individuals) and from $12,700 to $24,000 (couples.)

While this new standard deduction may provide higher benefits to some, it can also reduce the financial incentives for renters to purchase a home.

Realtor Industry Changes

“Virtual reality is the future of real estate,” said Ryan Conrad, CEO of the Northern Virginia Association of Realtors. Already in use are 3D, 360-degree, and drone-enabled photography and videography that can offer a virtual visit in and around a home and its neighborhood, virtual staging technology, and drone mapping.

Newly developed, the ability to “walk through” a home via Google Glass or a video can greatly assist Realtors in narrowing down the number of homes a client will actually want to visit. Google Glass is a tiny computer/camera worn around the head that enables a real estate agent to video chat while offering a live tour of a property, for up to nine others. It works through Google+ Hangout technology and allows hands-free voice or video calls directly from the Realtor’s point of view while they are in the home. Those connected are able to ask questions or request that the Realtor show them specific areas of the home or grounds.

Professionalism is also at the forefront of the Realtor experience, as traditional realty companies compete with low-commission and online firms. Personalized services and more interaction through social media and feedback sites will increase. Visual methods of marketing will take preference, and online advertising, such as sponsored FaceBook ads, will become more prevalent.

Housing Trends

Home sales going into 2018 are still slow, attributed largely to the lack of inventory and new construction. But with interest rates remaining extremely competitive at below 5%, home prices rising only a fraction, and rents reporting sky-high, it is still an excellent time to buy.

“One trend we’re seeing is a move toward high-density, mixed-use, amenity-rich communities,” said Eric Maribojoc, Executive Director of the Center for Real Estate Entrepreneurship, George Mason University. Already, communities like this are springing up in Tysons, Reston, the Mosaic District, and Fairfax Circle that combine residential living with grocery and service providers.

Older people are also moving back into more urban areas, especially within the Boomer population. Instead of migrating to retirement villages as they downsize, many are looking for the convenience of a walkable community in “smart growth,” urban centers. For those who wish to remain in their homes, remodeling and upgrading their homes for aging in place is rising in popularity.

Another trend is for Accessory Dwelling Units (ADU), sometimes known as “granny flats,” generally used as rentals. These are separate structures, or units within an existing home, that have their own entrance, living space, kitchen, bathroom and utilities, with the property owner required to also reside on the same lot. “There is a demand for more affordable housing in high-priced areas,” Maribojoc added. In November 2017, Arlington County adopted revisions to its legislation to remove limitations previously in place and increase opportunities for residents to add accessory dwellings.

A third trend noted by Maribojoc are e-lofts, where former office spaces are transformed into flexible, mixed-use, live-and-work apartments and office suites, as in the newly-opened e-lofts by Novus Residences (a subsidiary of Cafritz Interests) in Alexandria.

Shifts in the Buyer/Seller Population

“One market segment that is really going to make a difference is the younger population,” reported S. Scott Avery, president of AveryHess Realtors in his market report seminar held in January. While the Baby Boomers aren’t downsizing and are staying in the workplace longer, the younger generations like the Millennials and Centennials (Gen Z) have surpassed them in terms of numbers. They are graduating college, establishing themselves in jobs, marrying and starting families, and looking to purchase their own homes. According to Realtor.com, “Millennials could make up 43% of home buyers by taking out a mortgage by the end of 2018.”

The ideal of owning a home continues to be the American Dream. And with sales of existing homes, new construction, and revitalization continuing, along with highly-desirable mortgage rates, we should see continued growth in 2018.

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