Home sales across the United States are likely to be hit in 2018 as Americans in the middle class receive less perks under the overhaul of U.S. taxes and face rising prices of homes and interest rates, say industry experts.
Sales of new family homes are expected to rise 5% during 2018, approximately just half the growth that was projected for 2017 and the slowest rate of growth in four years, according to NAHB the National Association of Home Builders.
The tax bill, which was approved by Congress and signed by President Trump, slashes the mortgage interest that can be used by home buyers as a deduction from $1 million to $750,000, which could potentially hurt buyers in places such as California and other expensive markets.
The tax plan also caps the amount of deduction for local and state taxes at $10,000, which effectively leaves homeowners in the higher tax states with larger tax bills.
The new rules will likely cause people to buy less expensive homes in 2018, a trend that already has become popular the past few years amongst the thrifty millennials who shun expensive living.
Large homebuilders such as PulteGroup and Lennar Corp. have suggested they are investing more in building entry-level homes.
The largest homebuilder in the U.S., D.R. Horton, Inc., by the number of homes sold, is expecting its less expensive homes under its Express Homes brand, to increase between 10% and 15% over the upcoming three years.
That business, focused on first-time buyers, represented 37% of the homes sold in the most recent quarter at D.R. Horton.
A long shift toward the less expensive entry-level homes will likely be the driving force behind growth in sales of new homes in 2018 said one Wall Street analyst.
An economist added that sales of apartment and condos or multifamily homes largely rental properties will remain flat in 2018.
The Mortgage Bankers Association is expecting the average price for new homes to increase 4.5% in 2018, up from what they expect to be an increase of 2.8% for 2017.
Nevertheless, there are analysts that expect new home demand to be robust supported by more job increases and hikes in wages that are expected thanks to the tax reform.
In 2017 the appetite to buy new homes remained strong, but homebuilders were unable to benefit from that demand because of a lack of labor and as lumber prices jumped by 39%.