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First Time Home Buyers In Midst of Tax Reform

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  • #1

    First Time Home Buyers In Midst of Tax Reform

    We've arrived.  The employment contract is about to be signed with my husband's first attending job to start in Sept 2018.  Our rental lease will also be expiring.

    We've waited a really really really long time.  It's time to buy (or build) a house of our own.

    But with home prices projected to fall 10-20% next year because of the tax reform, does this mean we should wait even longer?

    (political comment removed by moderator)
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  • #2
    I'm in a similar situation, in CA where there will be a lot of squeeze at the top end of the income and housing market as a result of this bill. We are also at historic highs in the stock market with record consumer confidence and home prices at an all time high. I'm waiting about another year but will buy within 2 if things don't drop by then. Saving lots of cash to be able to move in an economic down market when I'll also have pretty good access to loans with a good income (hopefully) and if everything keeps going up then at least I'll have more of a down payment.

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    • #3

      lej8k wrote:



      We’ve arrived.  The employment contract is about to be signed with my husband’s first attending job to start in Sept 2018.  Our rental lease will also be expiring.

      We’ve waited a really really really long time.  It’s time to buy (or build) a house of our own.

      But with home prices projected to fall 10-20% next year because of the tax reform, does this mean we should wait even longer?

      Thanks Trump!
      Click to expand...


      If I were in your position I would definitely let things shake out for another year before buying/building.  Lot of uncertainty right now in the housing market.

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      • #4

        iradoc wrote:





         
        Click to expand…


        If I were in your position I would definitely let things shake out for another year before buying/building.  Lot of uncertainty right now in the housing market.
        Click to expand...


        I wouldn't do anything big right now from a personal finance standpoint. Certainly would not buy a house in 2018 if I could avoid it.

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        • #5
          How do you guys know home prices will fall? I thought everyone here was against market-timing 

          I wouldn't get to caught up on the doom's day scenarios portrayed by politicians (or people who had something to lose in the political realm - ie realtors warning of doom). If you're ready, you're ready.

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          • #6
            We've been looking to buy for 2 years.  My first time owning. Finally found something in Nov and expecting to close early Jan.  I did not think the tax overhaul would pass, then after it did, I didn't think it would affect us that much.  The approximate math (live in high cost of living area):

            state income tax 11k

            first year mortgage interest 18k

            property tax 8k (dropping to 6500 after residential exemption** see below)

            So, before tax reform, we could have deducted 37k, with the new reform we deduct 26k (I think, if I did this right).  So, that is significant to me since I am still paying back student loans (at 2.9% thanks First Republic).

            This is my first home buying experience, so there was some "on-the-job" training.  I did not realize how sellers can lie about the status of the roof (crap), the masonry (also crap).  I wish I had known how much leg work I would have to do on my own to confirm sellers' claims.  I've decided to get my real estate license when we sell this place, hopefully a long time from now.

            If anyone more experienced can tell me any other way we can save money, please let me know!

            Since rent in my city is ~3500/month, we still come out a little better by buying since the bf had a significant downpayment. Otherwise would not have been doable.

            **I also did not realize that to qualify for residential exemption, you have to live in the property Jan 1 of the prior tax year which runs June-May.  WTF. So, we will not get that residential exemption for a while.

             

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            • #7
              If you're buying for personal satisfaction and intend to stay for the long-term I wouldn't worry about the current real estate uncertainty. Mortgage rates are still low and the individual tax bill changes are temporary and will be readdressed in the coming years. If you're buying just to get out of the rental market and are unsure how long you will be in your future home, I'd be more hesitant.

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              • #8

                lej8k wrote:



                We’ve waited a really really really long time.  It’s time to buy (or build) a house of our own.
                Click to expand...


                Not necessarily.  Almost half of new attendings leave their first job within two years.  You also state that you expect home prices to drop by as much as 20% in the next year.

                This strongly suggests that you should wait a year or two, see if your husband likes his job and his employers like him, see how the commutes to work are for the two of you, get a better feel for school districts and recreational activities, etc.  Why not continue to live like a resident, pay down debt, build up a down payment, and let the price of housing drop if that's the direction you think things are headed?

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                • #9
                  what's this arrived stuff?  i've been working for decades and i'm still waiting to arrive. 

                   

                  predictions are difficult.  especially about the future.

                  no way anyone can know if market will drop 20% next year.  but it is as close as we get to unanimous that you shouldn't buy a dream house when you start a job.  especially not your first job.

                   

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                  • #10
                    Can you show me the math on how the housing market will decline by 10-20% this year by limiting interest deduction to $750k loans from $1M that reverts in 2026?

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                    • #11

                      ENT Doc wrote:



                      Can you show me the math on how the housing market will decline by 10-20% this year by limiting interest deduction to $750k loans from $1M that reverts in 2026?
                      Click to expand...


                      I certainly don't predict with anything near that level of certainty or based on any legislation.

                      I do think we're kind of near the point like in the Big Short where it was obvious to many paying attention that things were about to get very bumpy.

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                      • #12
                        I hardly think this is Big Short stuff. The maximal cash flow effects depend on the interest rate, and the marginal tax rate. If you assume a maximal loss of $250k in deductions then your cash losses on the home for 2018-2025 will be $250k x interest rate x marginal rate. Assuming a 4% interest rate and 50% marginal rate we're talking about a maximum loss of $5k for 8 years. This doesn't even equate to a 4% decline for a $1.2M home. The end is nigh.

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                        • #13
                          This is the article I read today that scared me

                          https://www.forbes.com/sites/kellyphillipserb/2017/12/01/realtors-predict-tax-bill-will-cause-housing-prices-to-drop-in-every-state/#3a0922db30fb

                           

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                          • #14
                            The five of 8 year occupancy rule for capital gains is gone from the final bill. No reason to worry about that part.

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                            • #15
                              Two things. This article is based on proposed legislation that never made it into law (unfortunately). It is also inspired by what the national association of realtors says. What do you think their interest is, and do you honestly think their assessment isn't hopelessly biased?

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