At the end of 2017, President Trump signed the most sweeping tax cuts bill in over 30 years, the Tax Cuts and Job Acts bill. The 2017 tax reforms went into effect on January 1, 2018. It’s been almost a year-and-a-half since those cuts went into effect. Has there been a drop in home sales?
Are Home Sales Really Falling?
In July 2018, Bloomberg noted that new home sales fell to an eight-month low. Again, in March this year, Bloomberg reported that new home sales hit a three-month low in January. Meanwhile, existing home sales increased in the same month by the most since 2010. So what’s going in the market?
The Federal Reserve Bank of New York published a series of analyses on the housing market last month. In their fourth post, they concluded that the tax law reforms contributed to the slowdown in the housing market last year. However, they also admitted that the evidence is not conclusive. To that, I would agree.
In April, Bloomberg reported that new home sales rose to a 16-month high in March of this year. That’s one heck of a turnaround. In that report, Bloomberg noted that single-family sales rose 4.5 percent while the median sales price decreased 9.7 percent from one year earlier. Property sales for homes where construction hasn’t started yet grew to the most since November 2017. Does this mean the property market is recovering, and what does it have to say about the 2017 tax reforms?
What Caused Housing Sales to Decline in 2018?
There is any number of reasons why home sales may have declined last year. Tax reforms could be one reason. It could also have been that economists overall, and the general public, simply weren’t confident in the economy. There was a lot of talk of a coming recession.
According to one survey, as many as 36 percent of Americans expected a recession to begin in 2018. Of course, that didn’t happen, so maybe some of those Americans are feeling confident again. At any rate, if potential homeowners don’t feel confident about the overall economy–and real estate is generally seen as an indicator of economic confidence–then they won’t buy new homes.
Another reason real estate sales may have taken hit last year is because real property buyers weren’t sure how the new tax changes were going to impact their finances long-term. If that is the case, they likely deferred real estate purchases until they could feel confident they could take advantage of tax benefits in a positive way. Chances are, the reasons for last year’s decline in home sales were mixed and can’t be pinned only one thing.
Is the Real Estate Housing Market on a Bounceback?
It certainly is good news that new home sales are on the rise again. However, we can’t be confident that new home sales will continue to rise. The real estate market has been in flux for a couple of years. There clearly is no bull market, and I do not see signs of a bear either. We’ll likely continue to see some ups and downs. But what does that mean for investors?
In times of high volatility and market uncertainty, the best course of action for serious investors is portfolio diversification. If you haven’t examined your asset class mix in a while, now could be the time to take a serious look.
One asset class worth considering is real estate crowdfunding (RECF). Whether you’re looking for a debt-based investment or an equity-based deal, real estate crowdfunding can help you diversify your portfolio beyond your current holdings. Not only can this be healthy for your portfolio overall, but RECF also gives you plenty of opportunities to diversify within the asset class itself since you can spread your RECF investments among several different properties and different types of property investments. The nature of this type of investing makes it easier to do so more quickly.
Another advantage to RECF is that investments are typically short term. This will give you time to see where the market is headed so that you can respond to the next shift with confidence.