Survey finds pessimism over post-tax cut housing market

Housing experts say they expect appreciation to slow to below 3 percent by 2021
The longer-term outlook for the housing market is 'less rosy|!!|' says Zillow senior economist Aaron Terrazas.

A Zillow survey of housing experts across the nation has found that many of them have lowered their long-term expectations for the U.S. housing market in the wake of recent changes to federal tax laws.

According to the 2018 Q1 Zillow Home Price Expectations Survey, conducted by Pulsenomics LLC, 41 percent of the more than 100 housing experts and economists surveyed said their overall five-year housing outlook is now more pessimistic than before the tax changes, while 31 percent had a more optimistic view. The remaining 28 percent of respondents said that tax reform did not change their outlook.

The Tax Cuts and Jobs Act, enacted in December 2017, limited many itemized deductions such as the mortgage interest deduction while expanding the standard deduction. Most taxpayers take the standard deduction, and will see take-home incomes increase as a result of tax reform, providing a boost to spending, savings and investment this year.

One possible reason for the experts' pessimism is the fear that cutting taxes when the American economy is already running at full capacity increases the risk of a downturn in the next five years. This could push the Federal Reserve to increase interest rates faster than had been expected, according to Zillow senior economist Aaron Terrazas.

"By expanding the standard deduction, tax reform will put more money into the typical American's pocket in 2018, which will boost spending and could help renters save faster for a down payment," said Terrazas. "But the longer-term outlook is less rosy. There is some concern that tax cuts at this point in the business cycle may be throwing fuel on an already raging fire and could lead the economy to overheat. Most economists we surveyed see a stronger outlook for the housing market over the next year or two but a more pessimistic outlook on the longer horizon."

Categories: Real Estate & Construction