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Housing Market Forecast 2018: Facing Tax Reform Changes

Magnifying glass looking at houses

  |  By Chris Shanahan, CISP®

The U.S. housing market is entering 2018 on a strong note. Single-family homebuilding and permits surged to more than 10-year highs in November,[1] while December confidence among homebuilders soared to its highest level in 18 years, as the growing economy boosts demand for housing.[2] While this housing information is not directly related to self-directed IRAs, I believe our readers are interested in a macro view on real estate so I’d like to share what I’ve been reading on the topic.

The housing market also is facing a large wild card in the form of newly passed tax reform legislation—and its potential impact on housing demand and home prices in 2018. Ahead of the tax bill’s passage, the National Association of Realtors (NAR) and Moody’s Analytics voiced concern that the tax overhaul would hurt home prices due to changes in mortgage interest deductions as well as state and local taxes. Moody’s Analytics estimated the hit to national house prices could be as much at 5%.[3]

Real estate investing, particularly investing in single-family homes, is popular among self-directed IRA owners. Our annual PENSCO client survey found that nearly half of survey participants are likely to increase their retirement portfolio allocation to real estate. Many PENSCO clients purchase houses as investment properties to potentially grow their nest eggs through monthly rental income and/or capital appreciation.

As we enter 2018, I’ve compiled a list of housing market predictions from a variety of real estate industry sources. But keep in mind: the following forecasts could evolve as the tax bill goes into effect and its full impact is realized.

Tax Legislation

The elimination of state and local tax deductions in high-tax states like California, New York, New Jersey, Maryland, Massachusetts and Illinois, means people could leave those states for areas where they can find more home for less money, according to real estate firm Redfin. Redfin notes that consumers are already seeking to leave expensive coastal cities for more affordable mid-tier cities like Sacramento, Atlanta and Phoenix. Tax reform could intensify this trend. noted that some taxpayers—including renters—could see tax cuts, which would result in increased disposable income. While that would be a positive for housing, indicated that the tax benefit loss for home owners could lead to fewer sales and hurt prices over time—with the largest impact felt in markets with higher prices and incomes.


One of Zillow’s top forecasts is that inventory shortages will drive prices up, creating headwinds for first-time homebuyers who cannot use profits from a prior home sale for a down payment, and estimates there are 12 percent fewer homes to choose from nationwide versus a year ago. Redfin agrees inventory will be a top concern, and expects the inventory shortage will continue to hinder sales and boost prices.   Redfin also forecasts small increases in inventory at the high-end of the market, but does not expect starter-home inventory to increase meaningfully. In contrast, sees inventory constraints easing in 2018. It projects year-over-year inventory growth to tick into positive territory by fall for the first time since 2015.

Home Price Growth

When providing estimates for average home price increases in 2018, most real estate sources noted these figures could change given passage of tax reform. Excluding the impact of the tax bill, expects home price appreciation to slow to 3.2 percent growth year-over-year, from an estimated 5.5 percent increase in 2017. Most of the slowing will be seen in the higher-priced segment while estimates entry-level homes will see price gains due to the larger number of buyers that can afford them and limited inventory. Zillow estimates home prices will climb 4.1 percent in 2018. While that is fast compared with “normal” annual appreciation, which is closer to 3 percent, Zillow states that is slower than the current 6.9 percent annual pace of annual of home value growth.

Millennial Demand

According to Zillow, millennials will flock to the suburbs in search of a greater variety of homes at relatively lower prices. Redfin says this is boosting demand for so-called “Urban Suburbs.” These are neighborhoods outside the city that are still rather densely populated, have walkable amenities, and either have bikeable commutes or easy access to public transportation. It lists West Chester, Pennsylvania; Arlington, Massachusetts; East Meadow, New York; and Skokie, Illinois as the Top 4 Urban Suburbs on the rise for 2018.

Tax bill uncertainty hangs over the 2018 housing market outlook

The housing market forecast for 2018 is full of varied predictions, but almost all of them have the potential to be influenced by the newly-passed tax bill.

As a self-directed IRA investor, it is crucial that you weigh the positives and negatives of buying real estate with your retirement funds before making any investment decisions. It also is important that you understand the nuances of buying a single-family home with self-directed IRA dollars, including the need to avoid prohibited transactions and why it’s necessary to take out a non-recourse loan if your IRA does not have enough cash to finance the entire deal.

Although PENSCO clients often buy single-family homes, there are several other ways self-directed IRA clients obtain exposure to the real estate market. Many retirement investors own commercial property, raw land, mortgage notes or trust deeds secured by real estate in their self-directed IRAs. It’s important to consider all of your options before moving forward with a real estate investment and that you speak with a real estate professional as well as a tax or legal professional familiar with self-directed IRAs that can help explain the rules.

Once you’ve made a decision about investing in real estate with a self-directed IRA, download our Tax-Advantaged Real Estate Investing guide to learn more about investing in real estate with a PENSCO self-directed IRA.

[1] “Single-family housing starts, permits hit 10-year high,”, 12/19/2017

[2] “U.S. Homebuilder Sentiment Hits Highest Level in 18 Years,”, 12/18/2017

[3] “Tax Reform Wild Card,” Moody’s Analytics

This Blog does not provide investment, tax, or legal advice nor does it evaluate, recommend or endorse any advisory firm or investment vehicle. Investments are not FDIC insured and are subject to risk, including the loss of principal.

PENSCO Trust Company performs the duties of an independent custodian of assets for self-directed individual and business retirement accounts and does not provide investment advice, sell investments or offer any tax or legal advice. Clients or potential clients are advised to perform their own due diligence in choosing any investment opportunity as well as selecting any professional to assist them with an investment opportunity. Alternative investments are not FDIC insured and are subject to risk, including loss of principal. Other than the Opus Affiliates, PENSCO is not affiliated with any financial professional, investment, investment sponsor, or investment, tax or legal advisor.