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What Can We Expect From The 2018 Housing Market?

What Can We Expect From The 2018 Housing Market?

By Matthew Gardner, Chief Economist, Windermere Real Estate  

It’s the time of the year when I look deep into my 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 my 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

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.

 

Tax Reform

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.

 

Housing Bubble

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.


Posted on December 13, 2017 at 7:21 pm
Windermere Greenwood | Posted in Windermere Greenwood |

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Helping 21 Families this Thanksgiving!

All month long, our Windermere Greenwood brokers and staff donated funds to help purchase turkeys, canned and perishable items for local families in need this holiday. During the holidays, canned pumpkin and yams, cranberry sauce and box stuffing, can help families have at least some of the traditional holiday fare.

Working with the  Greenwood Boys & Girls Club, we spent the morning organizing all the ingredients for Thanksgiving dinner for 21 neighborhood families!

This is just one way that Windermere Greenwood donates our time and money through the Windermere Foundation to support local non-profit organizations in our community. If you’d like to help us continue to support these and other programs this holiday season or beyond, please let us know!

Thank you to everyone who supports the Windermere Foundation. Your generosity is truly making a difference in the lives of many families in our local communities.

Windermere Greenwood wishes all of you a bountiful Thanksgiving with family and friends!


Posted on November 21, 2017 at 10:42 pm
Stephani Nelson | Posted in Greenwood, Seattle, Uncategorized, Windermere Foundation, Windermere Greenwood | Tagged , , ,

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Posted on November 14, 2017 at 7:11 pm
Windermere Greenwood | Posted in Windermere Greenwood |

Windermere Foundation Quarterly Report | Q3 2017

Dear Friends of the Windermere Foundation,

Thanks to the generosity of Windermere agents and the community, the Windermere Foundation collected over $1,537,000 in donations through the third quarter of 2017. This is an increase of nine percent compared to this time last year! Individual contributions and fundraisers accounted for 62 percent of the donations, while 38 percent came from donations through Windermere agent commissions. So far, we have raised a total of $34,643,324 in donations since 1989.

Each Windermere office has its own Windermere Foundation fund account that they use to make donations to organizations in their communities. Year to date, a total of $1,179,202 has been disbursed to non-profit organizations dedicated to providing services to low-income and homeless families throughout the Western U.S.

One organization that has been the recipient of Windermere Foundation funds is SafeHouse of the Desert. Safehouse of the Desert provides a “safe” residential environment for children between the ages of 11 to 17 years of age. These young people are the victims of physical and emotional abuse, homeless runaways, victims of human trafficking, emotionally unstable home environments and various other unsafe situations. The facility shelters the children from perpetrators and offers education, therapy, artistic expression, coupled with training for future jobs, skills and coaching in being responsible and making wise choices.

The 16 Windermere Homes & Estates offices  in Southern California (Alpine, Big Bear, Del Mar, Escondido, Fallbrook, La Jolla, Palm Desert, Palm Valley, Plaza at Aviara, Rancho Bernardo, Rancho Bernardo-The Plaza, Santaluz, Scripps Ranch, South Carlsbad-Aviara, Temecula, and Trilogy) pooled their funds together and donated $5,000 for SafeHouse’s emergency shelter. They presented the donation check to SafeHouse on October 11, where they also spent the day cleaning, landscaping, organizing storage rooms, and providing breakfast and lunch at Harrison House, the 15-unit complex located behind the shelter and houses its transitional living program.

When asked why they chose this organization to help, Selina Sullivan, Regional Administrator for Windermere Homes & Estates said, “We recognize that the youth of today represents the future adults of tomorrow. Asking ourselves what we would want that future to look like, we realized that by contributing to this organization, we were impacting that future and contributing to the welfare of ALL children. In a world that is often covered in darkness, we wanted to serve as a beacon for others and to contribute to future generations.”

Generous donations to the Windermere Foundation over the years have enabled Windermere offices to continue to support local non-profits like SafeHouse of the Desert. If you’d like to help support programs for low-income and homeless families in your community, please click on the Donate button.

Gratefully,

Christine Wood
Executive Director
Windermere Foundation


Posted on November 3, 2017 at 6:12 pm
Windermere Greenwood | Posted in Windermere Greenwood |

The Gardner Report | Q3 2017

The Gardner Report  | Western Washington Q3 2017

The following analysis of the Western Washington real estate market is provided by Windermere Real Estate Chief Economist Matthew Gardner. We hope that this information may assist you with making better-informed real estate decisions. For further information about the housing market in your area, please don’t hesitate to contact me.

ECONOMIC OVERVIEW


The Washington State economy added 79,600 new jobs over the past 12 months—an impressive growth rate of 2.4%, and well above the national growth rate of 1.2%. However, as we anticipated in last quarter’s report, we continue to see a modest slowdown in the growth rate as the state grows closer to full employment. Growth has been broad-based, with expansion in all major job sectors other than Aerospace (a function of a slowdown at Boeing). Given the current rate of expansion, I am raising my employment forecast and now predict that Washington will add 81,000 new jobs in 2017.

Given the robust job market, it is unsurprising that the state unemployment rate continues to fall. The current unemployment rate in Washington State is 4.6% and we are essentially at full employment. Additionally, all counties contained within this report reported either a drop or stability in their unemployment rate from a year ago. I maintain my belief that the Washington State economy will continue to outperform the U.S. as a whole. Given such a strong expansion, we should also expect solid income growth across Western Washington.

HOME SALES ACTIVITY


  • There were 25,312 home sales during the third quarter of 2017. This is an increase of 3.6% over the same period in 2016.
  • Clallam County maintains its number one position for sales growth over the past 12 months. Only four other counties saw double-digit gains in sales. This demonstrates continuing issues with the low supply of listings. There were modest declines in sales activity in six counties.
  • The market remains remarkably tight with listing inventory down by 14.2% when compared to the third quarter of 2016. But inventory is up a significant 32% compared to the second quarter of this year. Pending sales rose by 5.2% over the same quarter a year ago, which suggests that closings in Q4 will still be robust.
  • The key takeaway from this data is that inventory is still very low, and the situation is unlikely to improve through the balance of the year.
Annual Change in Home Sales

HOME PRICES


  • Given tight supply levels, it is unsurprising to see very solid price growth across the Western Washington counties. Year-over-year, average prices rose 12.3% to $474,184. This is 0.9% higher than seen in the second quarter of this year.
  • With demand far exceeding supply, price growth in Western Washington continues to trend well above the long-term average. As I do not expect to see the new home market expand at any significant pace, there will be continued pressure on the resale market, which will cause home prices to continue to rise at above-average rates.
  • When compared to the same period a year ago, price growth was most pronounced in Grays Harbor County where sale prices were 20.1% higher than the third quarter of 2016. Nine additional counties experienced double-digit price growth.
  • Mortgage rates in the quarter continue to test the lows of 2017, and this is unlikely to change in the near-term. This will allow home prices to escalate further but I expect we will see rates start to rise fairly modestly in 2018, which could slow price growth.
Western Washington Heat Map
Annual Change in Home Sale Prices

DAYS ON MARKET


  • The average number of days it took to sell a home in the quarter dropped by eight days when compared to the same quarter of 2016.
  • King County continues to be the tightest market, with homes taking an average of 17 days to sell. Every county except San Juan saw the days on market drop from the same period a year ago.
  • This quarter, it took an average of 43 days to sell a home. This is down from the 51 days it took in the second quarter of 2016 and down by 8 days from the second quarter of this year.
  • At some point, inventory will start to grow and this will lead to an increase in the average time it takes to sell a house. However, I do not expect that to happen at any time soon. So we remain in a seller’s market.
Average Days on Market

CONCLUSIONS


Market Speedometer
This speedometer reflects the state of the region’s housing market using housing inventory, price gains, home sales, interest rates, and larger economic factors. For the third quarter of 2017, I have left the needle at the same point as the second quarter. Though price growth remains robust, sales activity has slowed very slightly and listings jumped relative to the second quarter. That said, the market is very strong and buyers will continue to find significant competition for accurately priced and well-located homes.

ABOUT MATTHEW GARDNER


Matthew Gardner is the Chief Economist for Windermere Real Estate, specializing in residential market analysis, commercial/industrial market analysis, financial analysis, and land use and regional economics. He is the former Principal of Gardner Economics, and has more than 30 years of professional experience both in the U.S. and U.K.

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Windermere Greenwood | Posted in Windermere Greenwood |

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