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34 Tendayi Kapfidze is Chief Economist at LendingTree, where he oversees the company's analysis of the U.S. economy with a focus on housing and mortgage market trends. In his most recent previous role, he served as Director of Global Economics at Pfizer in New York City. He was responsible for developing Pfizer's view on global macroeconomic trends and advising the leadership team on economic and financial risks. Prior to Pfizer, Kapfidze also previously served as Director of Economic and Capital Markets Research at Ally Financial and VP and Senior Economic Analyst at Bank of America. What are the new market trends you have forecasted for 2018? e impact of the recently passed tax plan will be a major wild card going into the new year. e items that were passed—changes to the mortgage interest and property tax deductions—are estimated at $1.5 trillion from 2018 to 2027 by the Treasury Department. Fundamental financial asset analysis would suggest that the present value is included in today's home values, which total about $30 trillion. Although the final plan is not as transformational as the initial proposals, it will still have an impact. Combined with the increase in the standard deduction, it meaningfully lowers the tax incentives for home ownership and nudges that eternal question "should I rent or buy?" more towards renting. ere are many divergent views on what this means for housing, which illustrates the degree of uncertainty. Two interesting examples follow. e American Enterprise Institute's (AEI) Ed Pinto and Alex Brill are quite sanguine about the impacts, and posit that the housing market will be fine, even healthier. Pinto argues the housing market will add supply as second homes become less attractive and builders focus on lower priced homes when demand for high priced homes falls. Brill points out that the mortgage deduction is not used by most borrowers and thus the impact on home values will be minimal. The AEI researchers both have reasonable expectations of the long-term impacts of housing-related tax changes. The question is how do we get from here to there? Daniel Alpert at Westwood Capital is concerned about this transition. He draws historical parallels to the tax reform of 1986, which arguably led to the savings and loan crisis. Alpert warns that the tax plan "will have deleterious effects on the disposable incomes of households in the regions of the country accounting for the bulk of mortgage and other debt that will make the cost of carrying real estate, on an after-tax basis, significantly greater." He goes on to make the connection from lower real estate asset values to disruption in financial and capital markets, an occurrence that brings up recent memories for most of us. Many correctly point out that a large proportion of homeowners are not affected by these changes, and it's a nonevent for the average homeowner. However, change in economic activity is driven at the margins; averages are just for measurement. e GOP's targeted strike at the blue states may come with a side of contagion and servicers may be among the first to see if borrowers become strained. What do these shifts predict for the future of the housing market? While I am concerned about the transition, ultimately reducing housing subsidies in their current form could be beneficial. e mortgage tax deduction is a regressive tax expenditure as its value to the taxpayer increases with income. It's also questionable whether it influences the homeownership level. So, while it would be better if it had not been implemented, caution is required in removing it. e reform would have been better if the savings were directed to supporting homeownership at the lower end of the scale. A first-time homebuyer's tax credit would be beneficial as research has shown that down payments are major obstacles to homeownership. Further, homeownership is an important pathway to increasing financial security, something we value greatly at LendingTree. Recent research findings revealed that while home appreciation lags equity markets, having a home and mortgage essentially constitute a forced savings mechanism for many borrowers who simply would not have had the discipline to put away the money saved by renting on a monthly basis. We see the results in reverse mortgages where the borrowers often do not have significant capital market assets. ese borrowers would not have had an asset to access for support in their retirement years without the ownership of their home. How do you feel potential homebuyers will react to the potential market fluctuations in 2018? Buyer sentiment is quite high amid a ASK THE ECONOMIST HEAR DIRECTLY FROM TODAY'S LEADING MARKET EXPERTS. Tendayi Kapfidze Chief Economist, LendingTree.com

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