Happy New Year!
As 2018 begins, what can you expect for the local and statewide real estate industry? Predictions vary from housing industry experts, but here’s what some of them are saying:
It’s all about inventory, even as demand remains strong.
While the economy and stock markets are doing remarkably well, housing availability remains a challenge, but that’s nothing new. Shrinking inventory is likely to be a major factor shaping the 2018 housing market. Yet, Realtor.com expects more houses could be for sale toward the end of the year, giving homebuyers a greater selection to choose from. “It looks like we could get to a point where we’re seeing growth in inventory sometime in the fall of 2018,” said Danielle Hale, chief economist for Realtor.com.
Meanwhile, demand for housing will remain a constant, resulting in rising prices. Watch for demand from a variety of clients, ranging from millennials, babyboomers and immigrants to foreign investors and even gen Xers who want a bigger house. Also, don’t forget about bankruptcy survivors who have waited out their seven-year year exile. Even with some people moving out of California for more affordable areas, demand will not wane.
Clients will still be eager to buy real estate because: home prices are appreciating and it’s a safe investment over the long haul; millennials need a home to raise their families; flips of older properties continue to provide returns; the economy is steadily improving under the Trump administration; foreigners are still eager to own U.S. property.
With the shortage in listings, homes may sell even faster in 2018. In 2017, 25 percent of homes in the U.S. sold in two weeks or less and one in five homes in less than one week. The California Association of REALTORS® recently reported that homes in San Diego County remained on the market for 17 days in November 2017, 19 days in October 2017 and 20 days in November 2016.
Mortgage rates will remain affordable.
Redfin expects the 30-year mortgage rate to inch up to between 4.3 and 4.5 percent for a standard, 30-year loan in 2018, which is still affordable for many buyers. Meanwhile, CoreLogic’s estimate is that the 30-year fixed will average 4.7 percent in December 2018. Mortgage rates are expected to slowly increase as a result of a portfolio reduction by the Federal Reserve. Back in October 2017, the Federal Reserve began reducing the size of its $4.5 trillion asset portfolio that includes $1.7 trillion in mortgage securities.
However, the combination of higher home prices and higher interest rates means mortgage payments will be higher in 2018 for the same home, which means a decline in affordability. For example, if mortgage rates rise to 4.7 percent toward the end of 2018, and the median price of existing homes rises by 4.1 percent, then monthly mortgage payments for a typical house would be higher. According to CoreLogic, monthly payments of principal and interest rose 13 percent in 2017, compared to 2016.
On the other hand, expect more options for buyers with credit issues. A growing number of lenders will offer interest-only mortgages, and even loans with limited income documentation. Some of these mortgages are dubbed “non-QM” because they don’t meet Fannie Mae’s and Freddie Mac’s plain-vanilla “qualified mortgage” rules.
No housing bubble in sight.
Home prices are expected to climb modestly, but not as fast. Home-price appreciation is expected to cool down in 2018 after a torrid couple of years, which is good news for first-time buyers.
No bubble is predicted even in impossibly hot markets such as the Bay Area. That’s because buyers are still making large down payments or paying all cash and sellers are getting their asking price — and then some. Overall, today’s average buyer has less debt relative to the value of their home than they did in 2006, before that infamous bubble burst.
Also, construction of single-family houses is expected to rise sharply in 2018. Take, for example, the city of Santee. Permits for 3,500 new homes are under review by the city. Currently, about 500 homes are under construction, which are part of 13 separate housing projects. In 2017, just 72 apartments, condos and homes were built in the city.
Tax reform not expected to deter most homebuyers and sellers.
Under the new tax reform law, buyers can deduct interest on mortgages up to $750,000 for home bought after Dec. 15, which is down from the previous $1-million limit. (Homes purchased on that date or before aren’t affected.) That means a homebuyer with a 20 percent down payment can purchase a $930,000 home and still deduct all the interest. Even for a borrower who took out a $1-million loan at 4 percent interest, $30,024 of interest payments are deductible in the first year, leaving $9,656 that are not.
In most cases, if a buyer borrows a million bucks to get a home, the write-off is typically not their primary concern. For sellers, single homeowners can still exclude $250,000 of sale proceeds from capital gains taxes as long as they’ve lived in the home for two out of the previous five years. Couples can continue to exclude up to $500,000.
Growth in the economy.
Brad Inman is predicting the economy will grow like crazy. He cites that job creation is at record levels, unemployment is at a 17-year low, wages are feeling upward pressure and companies are investing at a fast and furious pace. He writes, “A backdrop of political uncertainty will not slow down the global economic thoroughbred that is galloping at a full run.”