It’s the time of the year when our Chief Economist Matthew Gardner looks deep into his crystal ball to see what’s on the horizon for the upcoming year. As we are all aware, 2017 has been a stellar year for housing across the country, but can we expect that to continue in 2018?
Here are his thoughts:
Millennial Home Buyers
Last year, I predicted that the big story for 2017 would be millennial home buyers and it appears I was a little too bullish. To date, first-time buyers have made up 34% of all home purchases this year – still below the 40% that is expected in a normalized market. Although they are buying, it is not across all regions of the country, but rather in less expensive markets such as North Dakota, Ohio, and Maryland.
For the coming year, I believe the number of millennial buyers will expand further and be one of the biggest influencers in the U.S. housing market. I also believe that they will begin buying in more expensive markets. That’s because millennials are getting older and further into their careers, enabling them to save more money and raise their credit profiles.
Existing Home Sales
As far as existing home sales are concerned, in 2018 we should expect a reasonable increase of 3.7% – or 5.62 million housing units. In many areas, demand will continue to exceed supply, but a slight increase in inventory will help take some heat off the market. Because of this, home prices are likely to rise but by a more modest 4.4%.
New Home Sales
New home sales in 2018 should rise by around 8% to 655,000 units, with prices increasing by 4.1%. While housing starts – and therefore sales – will rise next year, they will still remain well below the long-term average due to escalating land, labor, materials, and regulatory costs. I do hold out hope that home builders will be able to help meet the high demand we’re expecting from first-time buyers, but in many markets it’s very difficult for them to do so due to rising construction costs.
Interest rates continue to baffle forecasters. The anticipated rise that many of us have been predicting for several years has yet to materialize. As it stands right now, my forecast for 2018 is for interest rates to rise modestly to an average of 4.4% for a conventional 30-year fixed-rate mortgage – still remarkably low when compared to historic averages.
Something that has the potential to have a major impact on housing are the current proposals relative to tax reform. As I write this, we know that both the House and Senate propose doubling the standard deduction, and the House plans to lower the mortgage interest deduction from $1,000,000 to $500,000. If passed, the mortgage deduction would no longer have value for home owners who would likely opt to take the standard deduction.
If either of the current proposals is adopted into law, the potential reduction in mortgage-related tax savings means the after-tax cost of home ownership will increase for most home owners. Additionally, both the House and Senate bills also end tax benefits for interest on second homes, and this could have a devastating effect in areas with higher concentrations of second homes.
The capping of the deduction for state and local property taxes (SALT) at $10,000 will also negatively impact states with high property taxes, such as California, Connecticut, and New York. Furthermore, proposed changes to the capital gains exemption on profits from the sale of a home (requiring five years of continuous residence as compared to the current two) could impact approximately 750,000 home sellers a year and slow the growth of home ownership.
Something else to consider is that all of the aforementioned changes will only affect new home purchases, which I fear might become a deterrent for current home owners to sell. Given the severe shortage of homes for sale in a number of markets across the country, this could serve to exacerbate an already-persistent problem.
I continue to be concerned about housing affordability. Home prices have been rising across much of the country at unsustainable rates, and although I still contend that we are not in “bubble” territory, it does represent a substantial impediment to the long-term health of the housing market. But if home price growth begins to taper, as I predict it will in 2018, that should provide some relief in many markets where there are concerns about a housing bubble.
In summary, along with slowing home price growth, there should be a modest improvement in the number of homes for sale in 2018, and the total home sales will be higher than 2017. First-time buyers will continue to play a substantial role in the nation’s housing market, but their influence may be limited depending on where the government lands on tax reform.
This post originally appeared on the Windermere.com blog.
Last week Windermere hosted 16 members of the China Alliance of Real Estate Agencies (CAREA) during a daylong tour of Seattle and Bellevue, WA. CAREA is a coalition of the largest regional and national real estate companies in China, representing over 60 percent of all Chinese real estate sales. Their stop in Seattle was a part of a four-city tour that also included Chicago, New York, and Dallas. The cities were identified because of their popularity amongst Chinese investors/buyers, and the CAREA member’s desire to better understand the residential real estate markets in those areas.
The group’s interest in Seattle stems from the growing number of Chinese foreign national buyers in the area, especially in neighborhoods like West Bellevue where real estate brokers say buyers are drawn to the newer homes, top-performing schools, and proximity to high-end restaurants and shopping. This year, Seattle surpassed San Francisco as the second place in the world where Chinese millionaires want to purchase property (according to Shanghai-based Hurun Research).
Windermere took the group on a tour of three luxury homes in West Bellevue that are on the market for between $5 and $10 million. The tour started with a new construction home priced at $6.8 million in Clyde Hill, represented by Windermere broker Shawna Ader. The second stop was a more traditional home in Medina for $5.3 million, listed by Windermere broker Wendy Paisley. The last home was the show stopper, an incredible manse priced at just under $10 million on Yarrow Point, represented by Windermere broker Anna Riley.
Along for the ride were also several members of the media who were drawn to the story about Chinese interest in the Seattle-area housing market. KING 5 News, KOMO 4 News, Q13 News, and the Seattle Times all spent time touring the homes and interviewing representatives from CAREA and Windermere about the reasons why Seattle is an increasingly popular location for international buyers.
Following the luxury home tour, the Chinese guests and Windermere executives gathered for lunch and a presentation by Windermere Chief Economist, Matthew Gardner, who provided an overview of the greater Seattle area housing market and economy. The day was then capped off with a seaplane tour of Seattle by Kenmore Air. As CAREA vice president Yi Lui stated after the tour, “A float plane is the way to sell Seattle.”
This post originally appeared on the Windermere.com blog.
Prices in our area have now been rising faster than anywhere in the country for twelve months. Sellers seem to be getting the message that now is a good time to put their home on the market. There was an increase in new inventory in October, but with homes selling rapidly, there still aren’t enough properties to meet demand. As a result, counties throughout the Puget Sound area saw year-over-year price increases in the double digits.
The median price for a single-family home on the Eastside rose 10 percent from a year ago to $845,000. Homes in West Bellevue hit a new record median price of $2.6 million. Despite soaring prices, demand has remained strong in this desirable area. And the continued robust economy makes it unlikely that home prices here will cool any time soon.
The number of new listings in King County increased at the highest rate in more than a year. But, they were grabbed up quickly, with most homes selling in well under 30 days. The shortage of homes for sale propelled prices up, with the median home price in King County jumping 15 percent over the same time last year to $630,000.
Seattle remains the hottest real estate market in the country, with prices rising here at more than double the national rate. Rents in Seattle are also rising faster than almost anywhere else in the country, pushing more people into the home buying market. High demand and slim supply helped boost the median price of a single-family home nearly 18 percent to $735,000.
The median price of a single-family home in Snohomish County in October was $440,000, an increase of 14 percent over the prior year. The market here may be moderating slightly. Brokers note that while multiple offers are continuing, listings are experiencing longer market times and fewer above-list price offers.
The typical seasonal slowdown of new listings in September added to frustration for buyers who are competing for a very limited number of homes. Strong job growth continues to fuel demand. The state added 83,000 new jobs in the month of August, and September looked to be just as robust. The result? King, Pierce and Snohomish counties all reported double-digit price increases from a year earlier.
The median price of a single-family home on the Eastside jumped 14 percent from the same time last year to a $855,000. As the median on the Eastside approaches the $1 million mark, the price tag for a luxury home is increasing. Of all the single-family homes that sold on the Eastside in September nearly 40 percent sold for more than $1 million. In the city of Bellevue, two-thirds of the homes sold for more than $1 million.
The median price of a single-family home sold in King County in September increased 16 percent from a year ago to $625,000. While down from the record high of $658,000 in July, it represents the highest value for any September since records began in 2000. Among the largest metro areas in the U.S., our region has now led the nation in price increases for the last 11 months.
Seattle’s inventory remains as tight as ever, with homes being snapped up in days. A big hiring push by local employers just keeps adding to the pressure. With supply dwindling and demand soaring, prices had only one place to go – up. In September, the median single-family home price in Seattle soared 15 percent over a year ago to $725,000.
The median price of a single-family home in Snohomish County sold in September was $450,000, a 14 percent increase over the same time last year. With just slightly over one month’s inventory of homes available, it’s unlikely price growth here will slow any time soon.
If you’ve been looking to buy a house, it’s easy to get discouraged. With our local real estate market still the hottest in the country, a lot of buyers have become frustrated after losing out to multiple offers and all-cash sales. While some buyers are considering waiting out the market, here is why that’s not a wise move.
1. Historically, this time of the year is the best time to buy a home.
The fourth quarter of the year has always seen the lowest demand for home sales. Kids are back in school. The holiday season is gearing up. It’s just not the time of year when people want to uproot their lives and move into a new home. That all changes in a few months. The market traditionally experiences the highest demand and the lowest inventory of the year between January and May. Your best bet is to make an offer now.
2. Home prices are expected to increase next year.
A booming economy, rising population, and an influx of highly-paid workers are all expected to sustain the strong demand for housing through 2018. While the sharp home price increases of the past few years are expected to moderate, Windermere Chief Economist Matthew Gardner predicts that home prices will increase by 9 percent next year.
3. Interest rates are predicted to rise.
Waiting means you’ll get less house for your money. It’s all about the One in Ten Rule. As Matthew Gardner explains, for every 1 percent increase in mortgage rates your buying power decreases by 10 percent. Even if home prices are flat a year from now (which is not expected), an increase in interest rates means you’ll have to borrow more money to buy the same house.
With home valuations at high levels today, buyers should consider three things before they purchase a home: Can I afford the monthly payments, do I like the location, and am I planning to live in the home for at least five years?
If you decide to move forward, your real estate agent can make the difference between winning the deal or not.
Here’s what sets Windermere Real Estate brokers apart:
- We can position your offer to have the greatest appeal to the seller (and sometimes that’s not just a higher price).
- We receive extensive training on how to create the most competitive offer and negotiate successfully in a multiple-offer situation.
- Other agents are more confident in completing a transaction with an agent from Windermere than they are with any other real estate company.
Contact us today.
This post originally appeared on the Windermere Eastside blog.