State of the Real Estate Market 2018
2017 being a ‘mixed-bag of confusion’ might be an understatement! The political stage took a lot of the nation’s focus for a while, record weather rampaged the country. An uneasiness set in regarding real estate, with some experts suggesting an imminent shift in the market (see diagram).
Real estate forecasts were about as accurate as the weather and political polls, as we saw a number of records, with three key flags - RECORD LOW:
Inventory (high prices)
Interest rates
Unemployment rates (high wages, low inventory of workers)
Interest Rates
Most experts expect interest rates to rise, however that prediction has been repeated for 18 months, and we haven’t yet seen it happen to any great extent. However, history tells us that a shift in the market happens every 7-10 years. If we follow trends, we are overdue. Perhaps the severity of the great recession dip in real estate has created a longer interval this time around. However, most economic experts expect mortgage rates to be at least half a percent higher by the end of 2018.
As mortgage rates are predicted to rise, along with a more modest increase home prices, homes become less affordable, which would likely have a downward push on home prices.
CoreLogic, a data provider for the real-estate industry, averaged six forecasts of mortgage rates, arriving at a consensus view that the 30-year fixed will average 4.7% in December 2018.
In November 2017, the 30-year, fixed-rate mortgage averaged 4.07%.
“Not only are mortgage rates higher, but mortgage rates will be at the highest level since 2011,” Frank Nothaft, chief economist for CoreLogic, said at the Urban Institute symposium. “So we’re looking at an environment, going forward, where this era of cheap mortgage rates will largely be behind us.”
Core Logic analyzes, comments and forecasts trends in global real estate, insurance and mortgage markets.
Tight inventory will be affected by any rise in interest rates. Rising rates have an effect on a homeowner’s tenure, as they tend to keep their homes longer when rates rise, if they bought at a lower rate.
Those considering a purchase should apply early and fix their rates.
Overall, one would expect to see a strong market in favor of sellers, however that’s where the uneasiness appears to be having an effect. Most markets are seeing a slow down, especially with homes that are priced above $350,000. Even lower-priced homes that are less desirable have stopped ‘flying off the shelf’, in the Buncombe County NC market.
A 3.9 month supply of existing homes for sale was reported in the fourth quarter in the US, which means it would take 3.9 months to sell all the homes on the market. A balanced market is 6 months, which has buyers and sellers on an even supply and demand chain. This tension is felt most by those buyers purchasing at a low price point.
Stock Market
The stock market reached new heights in 2017, and continues its growth, which currently constitutes the second-longest bull run in history. Economists point to tax reform and deregulation in Washington as key levers for companies to record record profits.
New Construction Starts In The US
New construction starts have seen a gradual rise in the US over the last 5 years. The U.S. Census Bureau and the U.S. Department of Housing and Urban Development jointly announced the following new residential construction statistics for November 2017:
Building Permits
Privately-owned housing units authorized by building permits in November were at a seasonally adjusted annual rate of 1,298,000. This is 1.4 percent (±1.7 percent)* below the revised October rate of 1,316,000, but is 3.4 percent (±2.3 percent) above the November 2016 rate of 1,255,000. Single-family authorizations in November were at a rate of 862,000; this is 1.4 percent (±1.6 percent)* above the revised October figure of 850,000. Authorizations of units in buildings with five units or more were at a rate of 395,000 in November.
Privately-owned housing starts in November were at a seasonally adjusted annual rate of 1,297,000. This is 3.3 percent (±9.1 percent)* above the revised October estimate of 1,256,000 and is 12.9 percent (±11.7 percent) above the November 2016 rate of 1,149,000. Single-family housing starts in November were at a rate of 930,000; this is 5.3 percent (±10.2 percent)* above the revised October figure of 883,000. The November rate for units in buildings with five units or more was 359,000. Housing Completions Privately-owned housing completions in November were at a seasonally adjusted annual rate of 1,116,000. This is 6.1 percent (±10.4 percent)* below the revised October estimate of 1,189,000 and is 7.2 percent (±12.5 percent)* below the November 2016 rate of 1,203,000. Single-family housing completions in November were at a rate of 752,000; this is 4.6 percent (±12.0 percent)* below the revised October rate of 788,000. The November rate for units in buildings with five units or more was 353,000.
Employment
In the last quarter of 2017, unemployment rates in the North Carolina region along with the US, had fallen to levels not seen in a decade. This has created a pressure on salaries, accompanied by the need for workers to live further outside the cities seeking more affordable homes. Area rentals are a record high occupancy rates, driving rental prices up.
The jobless rate for the Asheville metropolitan area hovered in the high 3 percent range in the last quarter of 2017. This rate has not been that low since 2007, before the recession. This is lower than the average rates across much of the US, which have also steadily declined since 2010, shown in the diagram above
Days on Market vs List Price Median, - Buncombe County NC
The rise in home prices is expected to slow down in 2018. According to the Federal Housing Finance Agency, home prices rose over 6% per year in 2016 and 2017. The forecast for 2018 is for a slowdown or flat growth.
One factor is new building starts increasing the supply of homes. According to building permit applications, single family home construction is expected to rise by over 8% in 2018.
“It looks like we could get to a point where we’re seeing growth in inventory sometime in the fall of 2018”. Danielle Hale, Chief Economist for Realtor.com predicts an easing of the inventory crisis next year.
Closed Price / List Price Ratios - Buncombe County NC
Closed Price / SqFt Ratios - Buncombe County NC
Current Active listings - January 2018 - Buncombe County NC
The number of homes for sale is smaller in every price categories than it has been in decades. This is felt most acutely in homes below $150,000, the homes that average workers tend to buy, along with investors who buy those homes to rent out to those workers.
In the last housing recession, investors bought many homes and continue to profit from the high rents due to the housing shortage across most of the country. This Buncombe County NC chart reflects the picture in many counties across the country.
Boomers are a large demographic group who are experiencing high home prices, and availability of home equity loans. They are in the age group of folks who have experienced their children going off to college, a group that traditionally looks to downsize to a smaller home. However, as prices have risen and inventory tightened, many of them cannot find a home that they want to move to, exacerbating the inventory issue. However, many are blind to the likelihood of the market shifting and a decline in home prices coming, as it has for decades. Their current home is usually more expensive than the home they are planning to move to, therefore the decline in price will be felt more acutely in the home they are selling, arguing for a move now, rent for a while, then buy as prices fall, or sell now and buy now, reaping the benefit of their current home’s strong price.
Home builders make more profit on custom built higher-end homes, so ‘starter-homes’ are sometimes not in their building plans.
16% Increase predicted in 2018 for Home Equity Loans
Another Factor in the inventory crisis is the number of homeowners accessing their increased home equity as home prices have risen, in some cases leading to boomers improving rather than moving.
About 1.6 million homeowners are predicted to get new home equity lines of credit in 2018, a 16% increase over 2017, according to a recent TransUnion study. The credit bureau states that 67% of homeowners have enough equity to get HELOCs, and 80% of those borrowers have high credit scores.
10 million homeowners will get HELOCs from 2018 through 2022, double the number of new lines of credit in the preceding five years, according to Transunion.
Estimates range from a 2-3% increase in the number of existing homes, or resales sold in 2018. Sales of new homes are expected to rise 7%, as builders race to fill the inventory gap.
Danielle Hale, chief economist for Realtor.com expects 6% existing home sales growth, especially in markets such as Dallas; Tulsa, Oklahoma; Little Rock, Arkansas; and Charlotte, North Carolina, citing the lower regulation and strong regional economies, coupled with availability of vacant land.
2013-2018 Historic Perspective, Number of Listings- Buncombe County NC
Locally, Asheville has more restrictive regulations than some Southern cities, however there is an abundance of vacant land. Exploring the decline of homes for sale over the last four years shows the following picture.
The October to January sharp decline in homes for sale is extreme, as home sellers take their home off the market for the holidays and ‘wait until the sprint to re-list’. This has become commonplace, and home sellers should take note of the dramatically decreased competition when selling their home in the fall and winter months.
Rental Market
The increasing lack of inventory has lead to increasing prices, in home prices and in rents.
In 2005, renters made up 31% of households. In the third quarter of 2017, that figure had risen to 36%, according to the Census Bureau.
Supply and demand are the king and queen of ruling the world of real estate. With demand high and supply low, values rise less people can afford to buy a home. Meanwhile, rents are rising faster than home prices, with these factors encouraging landlords to hold on to their rental homes.
Median Rent
Bottom line - it's time to sell to reap the benefits of the height of your home price for the next 7 - 10 years. Although it may rise this year, the increase is slowing down, and if you wait with everyone else, there will be a rush to sell and a huge deluge of homes on the market as people rush to protect their high price. Don't chase the market down, sell it now! Wherever you are in the country, tell us more about your home at this link, and get a value back on your home.
Sources:
Trulia, Zillow, Realtor.com, Federal Housing Finance Agency, HUD, CoreLogic
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