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Each month, we use IBM Watson’s tools to assess the sentiment of hundreds of housing news articles about the US housing market. Overseeing that process is Tides analyst Dan Allen. Insightful and observant, he follows the media and helps us keep a pulse on what’s going on out there. Here are his observations on the top housing media trends in November 2017:
Summary of December News
Single-Family Rental Homes
An analysis by Zillow reveals that the proportion of single-family homes that are rented has increased significantly in the last decade. Zillow also finds that these rental homes tend to be less expensive than the average for their area.
Other analyses have found that demand for lower-priced starter homes far exceeds the available supply and Zillow’s findings suggest that a significant number of homes in that segment have been converted to rental units, contributing to the shortage. If home prices rise faster or further than rents, we would expect to see some of these rentals return to the for-sale market, thereby increasing the supply of starter homes for homebuyers. Zillow also found that the share of single-family homes being rented has leveled off in recent years.
Builder Confidence Rises to New High
Builder confidence as measured by the NAHB/Wells Fargo Housing Market Index nudged up 5 points further in December to an 18-year high of 74. Values above 50 indicate homebuilders view conditions overall to be more positive than negative. Homebuyer traffic—an indicator of demand—rose by a substantial eight points while the current sales conditions and future expectations components also registered increases.
Broken down by region, the West returned an index of 79, followed by the South at 72 and Midwest at 69. The Northeast has been left behind with an index of just 54. The West has benefited from strong economic growth in many of its largest metros since the recession while the South and Midwest benefit from relatively cheap and abundant land. The Northeast has generally reported weaker home building activity by comparison.
Tax Reform Signed into Law
The Tax Cuts and Jobs Act was signed into law on December 22. Most relevant to housing is a change to the mortgage interest deduction which reduces the deduction limit to interest paid on the first $750,000 of the mortgage balance from the prior limit of interest paid on the first $1 million. The headline change to the tax code is a reduction of the corporate tax rate to 21% from 35% which is hoped to increase economic growth.