{"id":4442,"date":"2016-11-30T13:27:09","date_gmt":"2016-11-30T18:27:09","guid":{"rendered":"https:\/\/www.renthop.com\/content-manager\/?p=4442"},"modified":"2016-11-30T13:28:00","modified_gmt":"2016-11-30T18:28:00","slug":"the-upcoming-2017-housing-crisis","status":"publish","type":"post","link":"https:\/\/www.renthop.com\/blog\/the-upcoming-2017-housing-crisis\/","title":{"rendered":"The Upcoming 2017 Housing Crisis?"},"content":{"rendered":"

We are now seven years past the worst of the housing crisis and the Great Recession of 2008. In most markets, the long foreclosure overhangs and short sales are finally back to historical levels. Hotter markets such as San Francisco<\/a>, Seattle<\/a>, Denver<\/a>, and Dallas<\/a> are well past their old bubble highs (harder hit markets like Detroit<\/a> and Las Vegas<\/a> have a way to go).<\/p>\n

However, just as we finally seem to be on the road to recovery, the pessimists are calling for another major crash! What is their reasoning? How could it happen?<\/p>\n

1.)\u00a0 Interest rates are (finally) rising<\/h2>\n

No one expected the zero-rate environment to last so long. Experts have been calling this one for at least five years (remember when S&P downgraded the US credit rating?).\u00a0 Nevertheless, we are finally seeing a sharp rise in long-term rates irecent n years, coupled with the Federal Funds rate rising, as well as a president-elect that promises to stimulate the economy (with policies likely to bring short-term inflation).<\/p>\n

\"Figure<\/a>
Figure 1: Ten-Year Treasury prices have dropped sharply since November 8th, corresponding to a significant rise in mortgage interest rates.<\/figcaption><\/figure>\n

Higher rates mean mortgages are more expensive. Higher mortgages mean less buying power, and less buying power means less competitive bidding for homes.<\/p>\n

2.)\u00a0 Crucial tax deductions are in limbo<\/h2>\n

Investors hate uncertainty, and right now, the upcoming tax policy impacting real estate is one huge question mark. Real estate investors today receive incredibly generous tax breaks. Mortgage interest and real estate taxes are generally deductible when computing income tax. Investors depreciate buildings even though the properties are usually increasing in market value. The more adventurous and frequent flippers benefit from 1031 tax-deferred exchanges and the primary residence capital gains exclusion rules.<\/p>\n

The President-elect has vowed to eliminate many tax loopholes in favor of an across-the-board lower income tax rate for everyone. However, Trump has also stressed the importance of home ownership and has undoubtedly taken advantage of many of the real estate tax breaks in his former mogul life. Ultimately, the answer is we don\u2019t know which tax deductions will survive. But the uncertainty itself presents a huge problem as investors take a wait-and-see approach before their next purchase.<\/p>\n

3.)\u00a0 Foreign buyers taking a pause<\/h2>\n

On a related note, it\u2019s no secret forthat eign buyers have played a significant role in the housing recovery since 2008. Some recent trends are dissuading foreign demand. First, the immigration laws are in limbo while the new administration figures out how strictly it wants to pursue isolationist policies. Secondly, several key currencies have been crashing against the USD, making the foreign buying community less attracted to American properties (RMB for example fell 10% in the last 18 months).<\/p>\n

\n

Learn more:<\/p>\n