Buyers rushed into high priced homes as tax threat loomed
New Home Sales (December 2017)
NHS fell 9.3% M/M to 625,000, and November’s number was revised down to 689,000 from a previously reported 733,000.
- NHS data is always messy. NHS are amongst the most volatile and revision prone economic data series. At LendingTree we prefer to look through some of this by considering the 3-month average to balance timeliness with information value. The 3-month average of 638,000 is at the second highest level since the financial crisis after November’s 642,000.
- Tax plan threat forced buyers to act. December sales occurred during the back and forth of the tax plan debate which considered lowering the mortgage interest deduction to $500,000 (ultimately lowered to $750,000). Homes above $500,000 were 26% of sales, the highest proportion since the sales price breakout began in 2002. This included homes above $750,000 at a high of 9% of sales. Buyers may have rushed into these properties to have their mortgages grandfathered under the old mortgage deduction limits.
- The tax plan presents some opportunities. The reduction in corporate taxes and other real estate developer friendly tax breaks should increase builder profit margins by 10-20%. This will increase the incentive to build more homes, especially at lower prices where new supply has been lacking due to small profit margins.