2018 is going to be a big year for real estate in the Sioux Empire. The market will favor sellers, but buyers will be happy too!
It’s interesting to see the mixed forecasts. One only needs to go back in time to find the answer on what affect the recent tax reform act will have on the economy and real estate values. Ignoring politics and focusing on historical economic data, it looks rather encouraging.
The last major tax reform was in 1981. The country was in a recession and interest rates reached 20%; an ugly combination. The GDP rate for 1981 was 2.6%, and a negative 1.9% the following year. Propelled by tax cuts, the economy in 1983 churned at 4.7%, and 7.3% by the end of 1984. We also experienced solid growth for the next 20 years, with only a slight recession in 1990 and 1991. Labor participation rate increased from 63% to 66% between 1981 and 1988, putting millions of people into the work force; hence, increasing household incomes.
The 2017 tax reform is not the same, but it’s similar enough. It’s expected that 85% of the workforce will see less tax money taken out of their paychecks. In Sioux Falls, the unemployment rate is near 2% and a strong diversified economy. With an increase in national GDP, we are certain to see even stronger business growth with higher demand for employees, and consequently higher wages.
Larger ‘take-home’ paychecks will undoubtedly create better household cash flow; something we haven’t seen for many years. Extra cash at the end of the month makes people feel better about their finances, increases their confidence, and delivers more opportunity for an improved lifestyle. This ultimately creates a better chance for middle and upper-middle class buyers to move up.
It may take a few months to catch hold, but it will happen sooner than later, and should last for many years to come.
There are a few caveats; one is the maximum deduction for real estate taxes of $10,000 and limited interest deduction on homes above $750,000, but this ought not to affect but a small percentage of homeowners in our area. The other is the cost of money; too much growth can cause mortgage rates to climb…which we anticipate, although, they won’t change greatly this year. With that said, expect rising values for sellers, and better opportunity for buyers; everyone wins this year!
We hope you have a fabulous 2018! And, we invite you to call or text…605.359.4100
Tony Ratchford Broker, CRS, SRES, ABR, co-owner Keller Williams Realty Sioux Falls