The Republican tax reform package will have little impact on the overall housing market, according to First American’s Real Estate Sentiment Index.
“The impact of the new tax code on the housing market has been heavily studied and debated in academic, policy and political circles, with most agreeing that the changes remove any significant tax differences between homeowners and renters for the majority of U.S. households,” First American Chief Economist Mark Fleming said in a release. “But, what do the people handling real estate transactions every day think?
“When it comes to the new tax code, title agents and real estate professionals – the folks that spend their days closing real estate transactions – do not believe that the new tax code will have a meaningful, negative impact on the housing market,” Fleming added.
According to First American’s index, overall confidence in transaction volume growth decreased 0.2 percent from the fourth quarter of 2017, but increased 4.1 percent compared with a year ago. Confidence in purchase transaction volume growth over the next 12 months increased 6.2 percent from last quarter, and was up 0.2 percent compared with a year ago.
Confidence in refinance transaction volume growth over the next 12 months decreased by 7.8 percent from last quarter, but increased 9.9 percent year-over-year.
“Overall, optimism among title insurance agents and real estate professionals decreased slightly this quarter, likely because they indicated refinance transaction volume is expected to fall in the coming year,” Fleming said. “However, optimism for growth in purchase transaction volume increased compared with a year ago. Increasing mortgage rates clearly impacted optimism for the refinance market, but despite this, optimism remains strong for increased purchase demand.”
Fleming said title agents and real estate professions slightly leaned toward the opinion that the new tax code would not negatively impact house appreciation, but responses were split relatively equally.
“Of the respondents, 27 percent believe that the tax code could negatively impact house price appreciation, 35 percent believe it will not do so, 35 percent were neutral on the topic,” Fleming said. “This split opinion may be due to the fact that expensive markets with higher priced homes are more likely to be impacted by the new tax law because of the limit on the deductibility of state and local property taxes.
“Indeed, survey respondents in areas with high housing costs, such as Washington D.C., California and New York, were more likely than others to agree that the new tax code would negatively impact house price appreciation,” he added.
First American said the five states with the greatest increase in title agent and real estate professional confidence in residential purchase transaction volume growth, compared with a year ago, were: Kentucky (+50 percent); West Virginia (+40 percent); Maryland (+31.3 percent); Arizona (+27.4 percent); and Texas (+24.3 percent).
The states in which title agents and real estate professionals had the highest predictions for residential price growth in the coming year were: Washington (+6.8 percent); Colorado (+6.6 percent); Oklahoma (+6.3 percent); Idaho (+5.5 percent); and Montana (+5.4 percent).