How Will the Housing Market Change in 2018?
Trends to expect in Silicon Valley
Real Estate Market in 2018
2017 proved to be a challenging year for many in the local Silicon Valley real estate market.
Buyers faced tough odds on winning bids in multiple offer situations. Many who considered selling their home and buy a nicer place in the Bay Area chose not to put their house on the market because they did not want to deal with the challenges of buying another home and use most of profits of the sale towards the purchase price of the next home, not to mention being subject to a new property tax rate.
Thanks to growing employment opportunities, more people are coming to the Bay Area than leaving it. Housing of any type is in short supply and limited land availability is a challenge to new housing projects. Developers are opting for dense, multi-unit complexes rather than single family homes, putting even more pressure on the single family home market.
Going into the New Year, what should we expect? Maybe a softening in demand due to the following factors:
Interest rates are expected to continue to rise modestly in 2018 from an average of 4.4% for a conventional 30-year fixed-rate mortgage. It is worth noting though that interest rates are still remarkably low when compared to historic averages.
Demand will continue to exceed supply but with all the new buildings expected to be delivered next year in Santa Clara County, a slight increase in inventory is expected which may take some heat off the market. As a result, we should also expect a slower price growth in 2018.
Finally, the new Tax Bill which will go into effect on January 1, 2018, will put in place the following changes:
Capital gains exclusion: In a huge win for current and prospective homeowners, current law is left in place on the capital gains exclusion of $250,000 for an individual and $500,000 for married couples on the sale of a home. Both the House and the Senate had sought to make it much harder to qualify for the exclusion.
Mortgage interest deduction. The maximum mortgage amount for households deducting their mortgage interest has been decreased to $750,000 from the current $1 million limit. The House bill initially sought a reduction to $500,000.
State and local tax deductions. Both property taxes and state and local income taxes remain deductible, although with a combined limit of $10,000. The limitations on these and other deductions means many homeowners who itemize today may find it more attractive to take the newly increased standard deduction.
Wherever the market may be going in 2018, there is no doubt that real estate has proved to be a remarkable investment over time on par with stock market returns and the favorable economic environment of the Bay Area is likely to sustain that upward trend again next year.
I wish you all a Merry Christmas and a wonderful New Year!