Where is the housing market headed?

Rising interest rates, prices make homeownership a different kind of calculation

Last month I wrote about Claremont, and I received lots of comments and feedback. Since then I spent a weekend in Stowe, Vt., which is in an entirely different place than Claremont. During ski season, if the conditions are good, Stowe is hopping. This has been a good (but not great) year I was told.

The wealth in Stowe is impressive, and like many New England vacation and resort towns, there is a large amount of expensive weekend and vacation housing, which pays taxes to support local services 12 months a year. Of course, Vermont has a sales tax and income tax too. (I have been working on a project in South Burlington, Vt. Chittenden County is humming, but it is a microeconomy.)

With the president saying he is going to impose trade tariffs, and the Fed stating it will nudge up rates, which community will be more impacted? Stowe or Claremont? A good question. More people in Stowe are likely to be impacted, but they also have more resources and, thus, resiliency.

I live in Concord (population 43,000). The city is doing well, so we are told. Municipal taxes went up 2 percent and school taxes went up 2.9 percent (with declining enrollments). The national economy has been on an upward trajectory since 2011. My real estate taxes went up $800 this year – 66 percent of the increase from reassessment and 34 percent by rising tax rates. I do not like the increase, but it is manageable. However, many of my neighbors are truly feeling it. It is a stretch for the elderly. I heard this theme frequently in Claremont, which has one of New Hampshire's highest tax rates.

The recent tax “cut” from Washington limits to $10,000 the amount of local property taxes that can be deducted from your federal return. That may come as a surprise to some folks.

I wish towns and cities would conduct some stress tests. What if property values declined 20 percent – what would that do to revenues? The strength in housing (and commercial property) values has been underwritten by the low cost of mortgage debt. When interest rates rise, which they will sooner or later, the affordability of housing will change and prices will likely flatten, or even decline some.

Lawrence Yun, the National Association of Realtors’ chief economist, says that an increase of mortgage rates from 4 percent to 4.5 percent adds $60 to the monthly payment on a typically priced home.

My daughter and son-in-law are in the market for their first home. They are looking in suburban Boston and the prices are staggering. They have been outbid a half-dozen times already. They qualify at today's rates for a pretty hefty mortgage (a number that shocks me). They asked me if they should buy. I am cautious. But they spend nearly $30,000 a year for rent and utilities. Ideally, they would like some of that to go toward building equity. I explain to them that this process is a marathon, not a sprint.

With home prices so high, it is unlikely they can buy, hold and sell at breakeven, or a gain, in the short-term. I could be wrong, but that is a dicey bet. So they should find a home they really like in a good neighborhood, and consider the schools, because this could be an eight- to 10- year investment (minimum).

It is not like the ‘80s, when I bought a home for $30,000, I fixed it up and sold it for $92,000. Then I bought a home for $90,000 and sold it for $146,000, then we bought our current home for $185,000, which has since been up and down in value several times. As I think about downsizing, I have not found anything that pencils out. So, I am giving more thought to perhaps creating an accessory dwelling unit apartment upstairs. This would allow me to stay and help pay the rising taxes and utilities.

Homeownership has been a keystone for the U.S. consumer. The dollar amounts have changed considerably, but there is more to it than just economics. A home has roots and community ties. Homeowners think and act differently than renters.

We talk about the current high cost of housing across the board, but some communities are impacted more than others. Communities like Claremont, dependent so heavily on property taxes, really are at a disadvantage.

Bill Norton, president of Norton Asset Management and principal of Harrington & Reeves, is a Counselor of Real Estate (CRE) and a Facilities Management Administrator (FMA). He can be reached at wbn@nortonnewengland.com.