Update on Seattle area real estate and the proposed tax law
Even with early seasonal snow and the expectation of our usual seasonal slowdown October key housing indicators continue trend upwards.
- Seattle, year-over-year prices jumped 17.6 percent.
- On the Eastside, the median price for a single-family home rose 10 percent from a year ago.
- Buyers outnumbered new listings, with 10,586 of them having their offers accepted compared to only 8,466 New Listings, further shrinking available inventory.
- Buyers may find themselves in a quandary as the year winds down as they contemplate limited supply, possible upticks in interest rates and tax reform. (See below).
Pending sales rose nearly 8 percent from a year ago, closed sales were up 5.2 percent, and prices jumped about 8.2 percent, with 14 counties reporting double-digit gains. Even the number of new listings improved on the year-ago total. The challenge for buyers actually isn’t lack of choice, it is the rapid pace of sales
Buyers may find themselves in a quandary as the year winds down as they contemplate limited supply, possible upticks in interest rates and tax reform. Last week’s announcement of a provision in a GOP tax proposal to cap the mortgage interest deduction is concerning to buyers, brokers and builders. That proposal would cap deductions for interest on homes up to $500k, down from the current $1 million.
Imagine if the proposed plan to cap the mortgage interest deduction at $500,000 is approved in a market that is starved for homes and where the median price [for a single-family home in King County] is now $630,000. Homeowners may be less likely to sell because they would be giving up their grandfathered tax credit on their current home. That’s fewer homes for sale in a market where we really need them. There could also be a flood of new buyers trying to purchase before the plan is passed, adding to the already hyper-competitive market conditions.
The tax bill also changes the home sale exclusion rule. IRS rules state that sale of a property held for more than one year is taxed as a capital gain instead of as regular income. Currently, if you have lived in the home for at least two of the five years immediately preceding the sale you can exclude $250,000 from taxes ($500,000 for a couple). The new tax bill extends that rule so that you must have lived in the home for five of the last eight years, which is a BIG change for many homeowners (first-time buyers, vets, etc.)
Northwest MLS data show 66 percent of single family homes sold so far this year (Jan. – Oct.) in King County had selling prices of $500,000 or higher.