Many former homeowners are rethinking their definitions of home. Is home “my” home? Is home where I’m living for now? Is home wherever I might be living next month or next year? What does “home” actually mean?
Because the housing market is tinged with uncertainty these days, it’s no wonder people are uncertain about “home.” The federal tax law passed in December 2017 eliminated many financial incentives that used to promote homeownership. There is a general uneasiness about the economy despite its strong gains in the last several years. Rising interest rates make monthly mortgage payments, and therefore the cost of homeownership, more expensive and some people are concerned about making a costly purchase they may later regret.
Aimee Raupp-Temple, a former homeowner in Brooklyn Heights, said, “Our parents’ mentality was, you bought your home and it was your major profit place. Now, I think people are a little more cautious. There are so many other ways to invest and make money than real estate now.”
Raupp-Temple has been renting a home in Westchester, CN during these three years since leaving New York. Even at $5,000, $8,000 or $10,000/month, it feels like a “safer bet” than owning a home where the median price of homes is +$1M. Others feel the same. The volume of single-family rentals in Westchester has increased +9.6% compared to last year at this same time, according to Miller Samuels Real Estate Appraisers and Consultants.
According to a Q2 report from William Pitt and Julia B. Fee for Sotheby’s International Realty, there is an “exploding rental market” among high-end properties in the southern part of Fairfield County, CN.
- The number of homes renting for $5,000/month has increased by +33% since 2015
- The number of homes renting for $10,000/month has increased by +35% since 2015.
- The number of top tier Westchester, Greenwich, New Canaan, Darien and Westport homes in mint conditions with large lots and/or beach area locations renting for +$10,000/month has increased by +12% since 2015.
Most interestingly, the number of sales in these above-mentioned locations is down -15% over the last 12 months.
Homeowners opting to rent are not just waiting for a stronger market. They’re opting to rent as a way to cut potential losses per the 2017 Tax Cuts and Jobs Act. The bill stipulates that if a homeowner sells a primary residence for less than its purchase price when he/she/they bought it, the loss does NOT qualify for a tax deduction. However, if that homeowner rents the house for at least two years, the house can be legally converted to an investment property for tax purposes. This means that any capital loss that occurs when the property is sold can be written off against any future income on that property.
Jonathan Miller, president of Miller Samuel, said that this demand for rental properties “in the suburbs” has been sparked by three things: the new federal tax law cap of $10,000 on state and local taxes, rising interest rates and “unclear economic policy.”
Miller also said, “We’re going through this era of uncertainty. And what do buyers do when the near-term seems uncertain? They pause.”