This week was particularly rewarding in my career. I was given the opportunity to help a US Veteran purchase a home in Vallejo and it became his this week! This was no ordinary home. It’s tenants had been terrorizing the kind neighbors for years and it was in desperate need of repair in this well maintained neighborhood just 3 houses away from an elementary school. In order to purchase this home, my client took the risk of putting thousands of dollars into the house before it would even qualify for a loan. We went through the process step by step together to make sure his risk paid off. I told my client all that he was taking on to make this house a home was a great gift for the neighborhood and the community. I feel very fortunate to have been a part of this transaction. It was a great start to 2018!
I am ready to help you meet your 2018 real estate goals as well! Start by catching up with me about your needs, wishes and timeline. I would love to meet up with you or we could exchange messages. Today you could head out to one of the open houses listed below. Maclennan, Randolph and Dumas are a few of my favorites. Maclennan is very well maintained in North Napa and ready to move in. Randolph is like walking into a fairy tale and in downtown. Dumas is new on the market in the sought after Linda Vista neighborhood in North Napa and worth a peek even if it is outside your price range. I’m happy to discuss any of these properties with you and can show them outside of open house time.
8 experts predict what the 2018 housing market has in store
What will happen to mortgages, inventory, affordability and more
by Jotham Sederstrom Staff Writer
The 2017 real estate market, characterized by a relentless listings shortage, surging home prices and a noisy political climate fueling uncertainty about the future, wasn’t without its challenges. Yet real estate professionals have weathered years far less rosy, and with a strong economy propelling job growth (and putting unemployment at a 17-year low), 2018 housing is poised for slow and steady gains — and perhaps a little more balance — say a panel of experts who shared their insights with Inman.
It’s expected that historically low interest rates, still baffling to even the most seasoned analysts, will gradually rise to an average of 4.5 percent over the next 12 months and inventory could increase moderately, resulting in what some, though not all economists, predict will be a seller’s market.
“This will be the first of many years to come in which it’s all about the millennial first-time homebuyer,” said Mark Fleming, chief economist at First American Financial Corporation, a title insurance service. “Find ways to appeal to those buyers, and it’s likely to be a successful year.”
Selected by Inman, eight leading housing experts and economists offered these insights and more during phone interviews and through written questionnaires submitted in December. They include:
How far will mortgage rates rise?
The economists agreed unanimously that, following several years of dormancy, 30-year fixed rate mortgages could finally rise from the current average rate of 3.9 percent — but they were divided on just how much it would increase, with most predicting they would stay well below 5 percent.
A panel of more than 100 experts surveyed by Zillow, meanwhile, forecasted that rates would rise, on average, to 4.5 percent by the end of the year, an increase of 60-70 basis points. The projected increase, said Zillow Chief Economist Svenja Gudell, falls far below the perceived threshold — approximately 6 percent — at which potential buyers typically exit the market.
“Affordability looks set to remain much better today than it was in the years prior to the housing boom, and there’s a lot of room for mortgage rates to grow before affordability looks worse today than it did historically,” Gudell said. “If home values grow in line with our forecasts over the next year, mortgage interest rates would need to exceed 6 percent before affordability looked worse than it did historically — and it’s unlikely rates will reach that level anytime soon.”
Despite muted inflation pressures, overall consumer inflation rose 2.2 percent in 2017, a harbinger that the Federal Reserve may seek to adjust rates several times next year, said Javier Vivas, director of economic research for realtor.com, who cited sustained economic growth.
“The realtor.com forecast expects mortgage rates to see 3-4 increases in the coming year and reach 5 percent by the end of 2018 due to stronger economic growth, inflationary pressure, and monetary policy normalization,” wrote Vivas in a submitted questionnaire.
On the low end, Matthew Gardener, chief economist at Windermere Real Estate, the largest real estate company in the Pacific Northwest, predicted a modest increase of 55 basis points.
“Interest rates continue to baffle forecasters,” Gardner said. “The anticipated rise that many of us have been predicting for several years has yet to materialize. As it stands, my forecast for 2018 is for interest rates to rise modestly to an average of 4.4 percent for a conventional 30-year fixed rate mortgage — still remarkably low when compared to historical averages.”
Inventory will continue to be a thorn for real estate
Up 13.7 percent in October, new housing starts in 2018 could help offset sky-high demand and historically low inventory numbers, which have repeatedly declined over 30-consecutive months to a current total of approximately 1.8 million homes. But most economists cast doubt on any notion that construction alone would act as a corrective to consistently low inventory and high prices, even as new listings rose nationally through the second half of 2017.
“The housing shortage will persist in many markets due to the legacy of slow rate of homebuilding over the past decade,” said Lawrence Yun, chief economist at the National Association of Realtors. “But due to the tax reform, [provisions] providing less financial benefit to be a homeowner, the overall price increase will be much softer in 2018, by 2-4 percent.”
Until then, however, the lack of inventory will continue to be a thorn for brokers, developers and homeowners, insisted Gardner, who nonetheless believes the number of homesellers overall will increase in 2018 for a host of reasons ranging from relocation to upsizing and downsizing.
“We continue to be stuck in a ‘chicken-and-egg” situation, whereby would-be sellers know that they will likely have no problem selling their existing home, but they will not list until they have found somewhere to buy, and if they can’t find somewhere to buy, they won’t list,” said Gardner, adding that affordability may emerge as the biggest issue of 2018. “I do expect to see an uptick in new-home starts, but unfortunately it will not be enough to meet pent-up demand.”
Added Fleming: “Keep in mind that existing homeowners are by far the largest source of inventory, and existing homeowners are increasingly prisoners in their own homes. Meanwhile, the new-home builders face impediments to increasing supply, namely labor shortages, limited number of buildable lots and laws (regulations) that hinder more construction.”
Affordability shaped by wage growth, tax reform, mortgage rates
The confluence of moderately higher mortgage rates and the enactment of tax reform legislation that threatens to chip away at property values could tug and pull at affordability in 2018, resulting in wild fluctuations in the first half of the year, some of the analysts predicted (notably before the final tax provisions were released Friday, December 15).
Homebuyers seeking housing in expensive metropolitan markets like California and New York, in particular, could be lashed with significantly higher property taxes under the proposed legislation that would restrict residents from deducting state and local taxes on federal returns to a limit of $10,000.
“Absolutely,” said Nela Richardson, chief economist at Redfin, when asked if affordability would remain problematic for homebuyers in 2018. “You can expect higher prices and potentially higher property taxes, particularly at the high-end of the market.”
However, provisions in the “Tax Cuts and Jobs Act” could also offset rising property values thanks to changes that threaten to make homeownership less appealing, including the reduction of the mortgage interest deduction cap to $750,000 from $1.1 million for new loans, curtailed further by the doubling of the standard deduction.
“If any bill passes this year, it will be bad news for the mortgage interest deduction,” said Steve Cook, a real estate communication consultant at commsconsulting.com. “Should the deduction become meaningless to middle and upper-middle-class owners, a significant incentive for homeownership will disappear. Homes will lose about 10 percent of their value over time due to decreased affordability for buyers.”
Yun, meanwhile, believes that if the economy continues to grow, a widening gap between home values and income levels could close in 2018, thereby creating the perception of affordability for millions of homebuyers — that is, until the mortgage rates begin to climb.
“In the past five years, home prices have risen 4 to 5 times faster than income growth,” said Yun. “Finally, in 2018, the growth in home prices and income could align. So slowly the affordability conditions will improve in regards to price and income. But the rising mortgage rates will quickly cut into affordability in the upcoming years.”
Millennial and first-time buyer trends
In 2018, watch for once considered under-the-radar “urban suburbs,” like West Chester, Pennsylvania; and Arlington, Massachusetts; to emerge as appealing alternatives to big cities for affluent millennials in search of walkable neighborhoods with highly ranked schools, advises Redfin’s Richardson.
“We’re getting a little bit more European in the way we think of suburbs, and I think that’s because of millennials,” said Richardson. “We knew five years ago that Millennials were going to make a big mark on housing, just because of sheer numbers, just the way their parents did, the boomers did before. We knew they were going to do something dramatic, but we didn’t know what it was. And now we know. It wasn’t that they weren’t going to buy at all, it was that they were going to remake the suburbs in their own interest.”
Selma Hepp, chief economist at Pacific Union International, agreed with Richardson, but envisioned a future where millennials gobble up townhouses close to city centers.
“Following the central-city booms led by millennials, their venture into home purchase will probably lead them to areas with more single-family, townhouse settings which contain elements of higher-density, amenity-rich neighborhoods,” Hepp said. “They will probably further spur revitalization efforts in areas adjacent to downtowns that are affordable. Home renovation services will remain in high demand.”
One obstacle that could prevent millennials from becoming the most active first-time homebuyers in 2018, however, is the scourge of student debt, said Cook, who believes that more marketing exposure to a host of homeownership programs would help increase demand.
“Millennials generally will play a more significant role in housing markets as time passes,” said Cook. “However, they will continue to face real problems with student loans debt. Low down payment options like FHA, VA and state and local homeownership programs are making a big difference, but they would be even more useful if more [first-time homebuyers] knew more about them.”
As for millennials’ baby boomer parents, meanwhile, an anticipated shift to smaller homes, in more affordable communities, hasn’t occurred at the clip many economists had originally forecasted. Such stasis, said Gardner, may result in a freeze in the housing market for first-time buyers as well as more seasoned homeowners seeking to upsize in the near future.
“Baby boomers have not started to downsize at the rates that we expected,” said Gardner. “This is due to the fact that many are staying in the workforce longer, and until they retire, they are unlikely to downsize. Additionally, many have a desire to age in place and not move.”
Trendspotting: Changes to Freddie and Fannie could be top priority
Richardson predicts that the next big policy issue to galvanize real estate professionals and Congressional officials will be the proposed reform of Freddie Mac and Fannie Mae, the government-sponsored entities that played a big role in the economic crises of 2008. Treasury Secretary Steve Mnuchin said earlier this year that efforts to overhaul the agencies would begin next year.
“The next big policy issue is going to be Freddie and Fannie reform,” said Richardson. “Freddie and Fannie and FHA are basically the housing market for most of America, so how the talk around those reforms affect mortgage financing and people’s willingness to buy and sell will play out next year. It won’t happen in the first half, but it might pick up steam in the second.”
As new tax reform legislation is set to become law in 2018, meanwhile, brokers should keep trusted accountants on speed dial, said realtor.com’s Vivas, who believes owners and sellers will increasingly be armed with a plethora of questions about how the tax code will affect them and their home in the new year.
“Keeping abreast of the implications of tax changes will be critical to understanding how your clients are feeling about a home purchase or sale in 2018,” Vivas said. “Agents can recommend that their clients check in with their tax professional to stay on top of (or ahead of) the changes. Every noteworthy change in the market is an opportunity to connect with clients and ensure you stay top of mind when they are ready to make their move.”
Hepp seconded Vivas’ advice about keeping tax professionals close by, but added that new technology in 2018 will be as critically important to understand, not least of all bitcoin.
“It’s important to stay informed and understand the current issues,” Hepp said. “For example, tax reform is very complex. There will be a lot of misunderstandings around the tax reform if it gets passed. Clients will ask questions. Same with bitcoin. Simply staying informed will help real estate agents and brokers stay relevant in the minds of consumers.”
Besides that migration to the “urban suburbs,” expect a trend toward home design that can accommodate multiple generations, said Gudell of Zillow.
“Newly constructed and newly renovated homes alike are very likely to feature livable, comfortable designs that appeal to both millennials and baby boomers,” wrote Gudell in a questionnaire submitted to Inman. “For example, they might boast wide hallways that can accommodate both strollers (for young families) and/or wheelchairs (for aging boomers).”
Growing up in Napa I learned the value of community. I strive to serve the neighborhoods that I grew up in and the people who desire to make Napa their home. I help people connect to the community of Napa with a focus on continuing to build the unique community of Napa and my belief that home is where your story begins.