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Will The Vacation Home Market Drop In 2018?


Gail MarksJarvis has an interesting look at how beach house prices could fall in 2018, due to the changes in the tax law. She writes in Reuters, New Tax Laws May Kill the Beach House Dream.

The new tax rules will have a big impact because many second-home buyers are middle-income households, not the super rich, and even a shift of a few thousand dollars can greatly affect affordability. The median buyer’s household income in 2016 was $89,900, and only 34 percent of buyers had household incomes over $100,000, according to the National Association of Realtors (NAR). Almost three-quarters used mortgage financing.

While second homeowners can still deduct the interest on new mortgages up to $750,000, experts predict that many people will no longer itemize their expenses on Schedule A. The new tax rules raise the standard deduction to $24,000 for a married couple, and this may be too high a threshold for many people to reach without being able to claim more than $10,000 in combined property and other state and local taxes.

Also, homeowners can no longer deduct interest on home equity loans. That is likely to hold back vacation home buying because many people use home equity on their main residence to purchase additional homes, said Zillow’s Terrazas.

When homeowners think about the long-term impact on their finances, the math becomes even trickier. People are looking at vacation homes as longer-term commitments than in the past, with the average buyer planning to own the home nine years compared with five years in 2015, NAR reported.


It will be interesting to see what happens in vacation home markets, especially those where you could potentially find a beach house that pays for itself.

We may see some buyers who are priced out of markets like the Jersey Shore, take advantage of a fall in prices to buy or we may begin to see some vacation home owners sell to buy better performing commercial real estate investments.


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