Real Estate Trends in 2018 Begin to Take Shape

The evolution of the real estate market is unstoppable with new trends emerging every year.  As the economy shifts into an even higher gear, with more consumers making plans to own homes, there is a lot you can expect. Compared to 2017 and other past years, you can expect 2018 to take you on a long ride in real estate as highlighted by Realtor.com.

Some of the main housing and real estate trends include:

Supply meets demand:
From market analysis and after about three years of crushing shortages in homes for sale, especially homes within the consumers’ budgets, predictions for 2018 show that buyers will gain more control over the market as housing supply finally catches up with the buyers’ demands.

Most potential homeowners who have been frustrated over the past few years are most likely to find homes matching their budgets. Bullish construction is expected to rise, turning the ship around in favor of homeowners by bringing up new homes, therefore increasing opportunities for more people to trade up into new homes.

As a home buyer, you shouldn’t rush into buying early in the year – the upper tiers will get relief before the middle and the lower tiers. With the market easing up, you can expect the prices of homes to drop, slowing down to a 3.2 percent growth, annually. Unfortunately, this causes slow appreciation which leads to a price increase.

While you can expect an overall rise in property prices, you will also see more of low-priced homes. Keep this in mind; it will get worse before it gets better.

 

Tax reforms:
With the Republican Party’s proposition for changes to the taxation system, everything can change. However, the jury is still out on this since the House, and the State versions remain in limbo.

In case a version of the tax reforms passes on the provision affecting real estate, the number of homes on sale may decrease, and the home prices may drop. The tax reform may affect the high-tier homes more.

More Millennials expected to gain independence:
Over the years, the housing market has been challenging to millennials leaving more millennials stuck in their parents’ basements. Even though millennials will still have to deal with student loans, it may be easier for millennials to take out mortgages on homes in 2018 than in the previous years.

This is probably because of rising income and an overall stronger economy, and better career development.

Rise in Short-term Rentals:

2018 will see an increase short-term rental homes and a thriving market, which has created a boom in opportunities for the single family and the large property owners.

The rise in short-term rentals has been necessitated by the need to earn extra cash from vacation homes. Everyone is looking for an opportunity to earn money so; you can expect this trend to grow in 2018.

Tiny homes:
You’ve probably seen tiny homes trending in the past few months. Besides tiny homes, there also are mobile homes. Thanks to the versatility of small and mobile living, as well as the affordability, this is going to be an upward trend.

Community-driven spaces and co-living:
Community-driven resident spaces and co-living will be on the rise in 2018 because of the renter demands and rights. These unique housing services will heighten competition in the commercial real estate.

Livability and quality of life as the deciding factors for housing:
Despite the price ranges on projects, consumers will choose quality over the price. In 2018, you cannot expect homebuyers to compromise on convenience, safety, security, spacious homes, and parking space.

Even with increasing interest rates, 2018 will see more cautious but determined home buyers. Also, there will be more homes selling in high-tax states, a rise in micro units, on-demand access to renters, and further growth of the alternative and private real estate investors.

 

Advise for Bay Area Homebuyers: Think Fast

 

If you see a Bay Area home sale listing, don’t blink. You’ll miss it.

Limited housing supply is driving prices sky-high and forcing buyers to move ever more quickly. In Santa Clara County, the median time for an existing home on the market in December was 9 days — by far the shortest listing-to-sale in a major metro. Homes sales in the county moved twice as quickly as they did during the same period last year, according to a new report from the California Association of Realtors.

“Nine days is a very, very low number,” said Oscar Wei, senior economist for the California Association of Realtors. “It’s the lowest we’ve seen since at least going back to 2007.”

East Bay homes also moved at a brisk pace, according to the report. The median time on the market in December for an Alameda home was 13 days, down from 16 days the previous year. In Contra Costa County, the median time was 16 days.  Buyers also hurried to close deals in San Mateo County (12 days), and San Francisco (18 days). Agents say homes usually move from listing to escrow in about 30 days in less-frenzied markets.

 

To make matters more grim for prospective homeowners, the association’s survey found housing supply dropped to levels not seen since June 2004. The pressures have combined to send prices of Bay Area homes skyward:  the median sale price for a home in Santa Clara County rose 34 percent last year, to $1.3 million, and jumped 14 percent in Alameda County, to $862,000, according to the association.

The median sale price for homes climbed to $1.5 million in San Mateo County and $1.48 million in San Francisco. Both represented a 12 percent jump from last year’s prices.

William Doerlich, past president of the Bay East Association of Realtors, advises buyers to move quickly even if it’s one of the first homes they see. “Jump at it when you see it,” Doerlich said. “If you like it, grab it and go.”

Brisk homes sales in Santa Clara County have been driven by transactions in Sunnyvale and Cupertino, near the new Apple headquarters, said George Montanari, sales manager at Alain Pinel Realtors in Los Gatos.

 

Montanari said cash offers for homes have hastened sales, as well as buyers coming to the table with strong financial positions. Some buyers are asking agents to make offers without seeing the homes, he said.

“Personally, this frenzy doesn’t feel good,” Montanari said, adding that due diligence is an important step before buying a home.

More upward pressure on the housing market is expected as Bay Area jobs and economy stay strong, Wei said. He believes the median price for Alameda County homes, which reached $880,000 in November, could hit the seven-figure mark before the end of 2018.

Throughout the state, the market for existing home sales stayed hot last month. The average time on the market for a single family home was 25 days, and 18 days for townhomes and condos. At the same time a year ago, California home and condo sellers waited about a month on average to close deals.

“This trend is probably going to continue,” Wei said. “Let’s face it, in the Bay Area and California in general, we haven’t been doing enough.”

 

Why is Home Inventory Shrinking in the Bay Area? Two Quick Answers

Bay Area housing trends are easily summarized: As the supply of available homes dries up, prices go up. It’s the law of supply and demand.

But why is the housing supply — insiders use the term “inventory” — so tight to begin with? And what can be done to expand the supply? For answers, we turned to Ralph McLaughlin, chief economist with Trulia, the residential real estate website.

McLaughlin, 36, is a former college professor who brings a conversational ease to subjects that might otherwise seem convoluted. He also has a keen sense of the Bay Area market: Raised in San Jose, he lives in Alameda in the East Bay, and he works in San Francisco, where Trulia is headquartered. For these reasons, we turned to him for the story behind the numbers.

Q: In a nutshell, what was the story of Bay Area real estate in 2017?

A: It was yet another year of price appreciation outpacing income growth and falling inventory that doesn’t seem to be reversing course anytime soon. It’s the same story we’ve been hearing for the last three to four years, but it’s becoming increasingly problematic for homebuyers. They’re likely to be more frustrated than they’ve ever been.

And that keeps me up at night — being from the Bay Area, it’s very tough knowing so many childhood friends who no longer live here because they can’t afford it. Recent data show the average person moving into the Bay Area earns $8,500 more than the average person who leaves: $90,000 for those coming in and $81,500 for those going out. That’s strong evidence that many middle-income Bay Areans are being priced out and replaced by earners with higher paying jobs.

Q: Why does the region’s housing supply keep shrinking? We hear about year-over-year decreases of 30, 40 and even 50 percent or more in some parts of the region.

A: There are two reasons why inventory continues to fall and prices continue to rise, and the unfortunate reality is that the problem is likely to get worse before it gets better.

The first reason is that we just aren’t building enough homes. And building new homes is extremely important for inventory because they create a chain reaction effect: You build a new house, then someone buys that house, and the buyer likely sells their existing house, and the person who buys that house will sell their home. And that continues down the line until an investor or first-time homebuyer buys that house. So one new home may lead to a four-to-five-fold increase in existing inventory.

Second, the Bay Area — and San Jose in particular — has an aging population. Most homeowners are between 40 and 60 years old, and that’s a time in life when they’re less likely to move. This demographic is less likely to move because they have children in the house, or they have no incentive to move because retirement is imminent. So you have a demographic roadblock to expanding inventory.

Q: Let’s look ahead: What impact will the congressional tax overhaul have on the supply of Bay Area housing?

A: The tax plan may actually make the inventory problem worse. That’s because the cap on the mortgage interest deduction has been reduced from $1 million to $750,000. This is likely to slow the market for homes where homebuyers would have to take out a mortgage for more than this amount. In addition, because existing homeowners are grandfathered in at the $1 million level, they’ll be incentivized to stay put and not move.

Q: What are some policy changes that could expand the housing supply?

A: At the national level, we could incentivize investors who snapped up homes in 2012 – at the bottom of the housing market – to sell. Many of these homes, especially single-family ones, would otherwise be available stock for first-time homebuyers. So if we gave investors a one-time free pass on capital gains, they might put those homes on the market.

Q: But maybe they’d wind up being purchased by other investors.

A: Not likely. This isn’t a great time to be an investor in the Bay Area, so we would hope those properties would be bought up and occupied by families.

Q: Why isn’t it a great time to be an investor?

A: If I bought a house in 2012, the rent I would get on that house would have been enough to pay for the mortgage. If I bought a house today, that’s not as likely, even though rents have risen in the interim. This is because prices have risen much more relative to rents, and that makes investing in rental properties less attractive.

Q: Let’s hear a second policy that could help expand inventory.

A: We could do a better job at providing housing for those that need it most. While not a perfect market solution, preserving existing affordable housing, stabilizing rent growth, and otherwise promoting the development of below-market-rate units helps households who might have to otherwise migrate out of the region stay here. We could also do a better job at encouraging the development of market-rate units, and while they don’t directly benefit low-income households, doing so helps keep higher-income households from looking down market for homes.

Q: And what about the bubble? Will it burst?

A: I don’t think there’s a bubble at all because growth in the market is being driven by economic fundamentals: Strong job growth and low supply equals high prices. The best that we can hope for is that price growth moderates to a place that is closer to inflation and that wage growth slowly catches up. But that will take a long time, probably decades if things continue as they are. It’s taken decades to get us into this mess, and if we don’t step up our housing game soon, it could take us decades to get out.

Three Tips for Home Buying in 2018

 

The first three months of the year tend to be slow for home buyers and sellers. But there’s plenty to do — or at least pay attention to — if you plan to buy or sell a home later in the year. Here are three housing and mortgage trends to heed in the first quarter of 2018:

• Peak buying season, traditionally, is later in the year, but the best-prepared buyers are laying the groundwork for success by tidying up their personal finances now
• Mortgage rates are predicted to rise, but not by a lot
• The new tax law will increase take-home pay for many wage earners, which might invigorate sales of moderately priced homes

 

1. Prepare now to buy later

More people buy homes in spring and summer than in fall and winter. If you want to join the warm-weather homebuying crowd, start getting ready now because you are likely to face fierce competition during peak homebuying months. As more buyers vie to buy despite a tight supply, the successful bidders will be those who got their financial houses in order while everyone else was perfecting guacamole recipes for Super Bowl parties.

“I think it’s wise to look into your ability to buy a home a good three to six months prior to shopping for that home,” says Michael Becker, branch manager for Sierra Pacific Mortgage in White Marsh, Maryland. This gives you time to correct any errors on your credit report and to improve your credit score so you can get the best possible rate, he says.

Here are four financial steps you should take now to keep your spring or summer homebuying plans intact:

1. Check your credit report for accuracy. Inaccurate information can cause your credit score to drop.

2. Clear up any problems you find. “If there are errors or some negative items on your credit report, you can spend the next couple months trying to clear them up,” Becker says. Here’s a guide to disputing credit reporting errors.
3. Get debt under control. At the same time, make sure you have enough in savings. This isn’t easy, especially if you overspent during the holiday season. “You want your credit score to be at its best so you can qualify for the best rates,” says Rick Sharga, chief marketing officer for Ten-X, an online real estate marketplace in Irvine, California. Paying down debts is an important factor in raising your credit score, he says.
4. Talk with a mortgage professional before working with a real estate agent.A mortgage officer will help you figure out how much house you can afford, so you can be realistic when you go house hunting over the next few months. “There’s nothing worse than falling in love with a home only to find out you can’t afford it,” Becker says.

2. Watch mortgage rates

Mortgage rates were fairly steady during most of the fourth quarter of 2017, but housing economists expect rates to move upward in the first three months of 2018. Forecasters from Fannie Mae, Freddie Mac, the Mortgage Bankers Association and the National Association of Realtors project a median rise of 0.2% by the end of March. The 30-year fixed began the year averaging 4.09%, so it would be roughly 4.3% at the end of the first quarter, if the forecasts are right.

“Mortgage rates are bound to go up at some point,” Sharga says. “I really believe 2018 is probably the year we’re going to see the numbers start to move back up, and part of that is tied into this tax reform bill that was passed.”

The president and Congressional Republicans have promised that many wage earners will see an increase in their take-home pay as tax cuts are reflected in reduced tax withholding. If they spend the additional money in their pockets, the economy will heat up, stoking inflation, according to basic economic theory.

“Inflation is the real reason bond yields and mortgage rates rise,” Becker says.

3. Know how the tax law affects homeownership

The new tax law sets a few things in motion:

• Many wage earners will see increases in take-home pay this winter after the IRS updates its tax withholding tables
• The standard deduction is almost doubled beginning in tax year 2018, so fewer homeowners will take tax deductions for mortgage interest and state and local taxes
• For some homeowners who do itemize deductions, the tax break on property taxes and state and local taxes will be reduced

Outside of high-tax states with expensive homes, “we might actually see some positive effects,” Sharga says. The higher standard deduction might result in taxpayers “with a little more cash to use, and we might actually see more of the low- to mid-priced range properties sell because of that.”

But that’s all theory, Sharga says. We won’t know for sure how the tax law shakes out for another year or more.

Bay Area Median Home Price Hits New Record Peak

Just when it seemed Bay Area home prices couldn’t jump any higher, they soared to dizzying new heights in November — and in the process, set a new record.

The median price for a single-family home in the Bay Area last month was $825,000, up nearly 15 percent from the same time last year, according to new data from property analytics company CoreLogic.

That’s the most expensive since CoreLogic started keeping track in 1988, surpassing the last record of $823,000 set in June. (That data excludes sales of new homes, which make up a small fraction of the region’s housing inventory).

“For the clients that I’m working with that are buyers, it is stressful,” said Sunnyvale-based real estate agent Kevin Swartz. “It is sometimes, I would say, disheartening.”

Meanwhile, the number of available home keeps shrinking, intensifying competition and contributing to the vertigo-inducing prices. Homeowners in the Bay Area’s nine counties sold just 5,123 single-family houses in November, down 2 percent from the same time last year, according to CoreLogic.

Santa Clara County saw the most dramatic price increase last month, with the median price for an existing single-family home jumping nearly 26 percent year-over-year to $1.18 million — a record for the county.

Even areas where homes remain comparatively affordable saw major spikes. In Solano County, the median price of a single-family home increased 14.5 percent, to $402,000. In Contra Costa County, the median price spiked nearly 10 percent to $564,500. Alameda County also saw a major jump as the median price there reached $825,000, up nearly 11 percent from last year.

The relentless rise in prices is about more than just price appreciation. It also reflects a shaking up of the market, according to CoreLogic research analyst Andrew LePage. A greater share of Bay Area sales are happening in high-end neighborhoods, which is skewing the calculation of the region’s median prices.

“There just isn’t enough inventory in the lower price ranges,” he said.

In Santa Clara County, almost 77 percent of sales of existing single-family homes closed at $800,000 or more, up from 65 percent the year before, LePage said. At the other end of the spectrum, just 9 percent sold for less than $500,000.

Homes that cheap are a relic of the past, at least in Silicon Valley, Swartz said.

“There is nothing like that anymore,” he said.

Over the past month, Swartz also has noticed homes getting appraised for less — and in some cases, much less — than the price they sold for. That development is disturbing for buyers’ peace of mind, but it also can have a more troubling effect of pushing a property out of reach for a first-time home buyer. If a property appraises for much less than its contract price, a bank often won’t lend enough to make up the difference, leaving the potential buyer without the means to afford the down payment.

“It’s going to probably mean that those fringe buyers who can just barely qualify are going to have to take a step back from the market until it slows down again,” Swartz said.

It’s not clear when that might happen. For now, the years-long upward trajectory shows little indication of slowing.

The median price of new and existing Bay Area houses and condos has increased an average of 11.6 percent year over year for the past six months, according to CoreLogic.

November marks the 68th straight month of year-over-year price increases. But that stretch isn’t unprecedented: The Bay Area saw a 69-month streak in the late 90s that stretched into 2001.

Whether buyers see relief next year will depend on how much housing supply the Bay Area generates, LePage said. Just 723 new homes were sold in the region last month, compared to 5,123 older homes, which make up the bulk of the market. And the number of new homes sold dropped more than 14 percent from last year. In San Francisco, just 13 new homes sold last month, compared to 128 in November of last year.

“There just aren’t a lot of signs,” LePage said, “that it’s going to loosen much.”

California's 2018 Real Estate Market Predictions-No Bubble in Sight

 

A real-estate site’s predictions for 2018 offer yet more disappointing news for would-be first-time homebuyers in California hoping that the New Year might bring some relief.

“The outlook for next year is rising prices, rising rates and rising property taxes,” said Redfin’s chief economist, Nela Richardson. “I wish I could have better news.”

Here is how Redfin’s housing market team predicts that the new year will shake out:

• California exodus: Buyers in high-tax states such as California will move elsewhere if federal tax reform takes away deductions for state and local taxes — one of the more controversial aspects of the proposals pending in Congress. Redfin surveyed 900 homebuyers about this question last month; 37 percent of those from California said they would consider leaving the state as a result, compared to 33 percent nationally.

 

• Waiting to sell: Proposed federal tax code changes relating to tax breaks and how long sellers must live in their homes to qualify — if passed — will make some people wait for another few years to list their homes, making the inventory shortage worse.

 

• Urban suburbs: “Wealthier millennials” will drive the development of a new, denser kind of suburb with modest-sized homes built close to transit, complete with walkable neighborhoods, some urban amenities and good schools. But they won’t necessarily be affordable. Mountain View, where the median price for 2-bedroom home is over $1 million, was Redfin’s Bay Area example of an urban suburb. Regardless, Richardson says, far-flung, sprawling homes known to those who don’t live in them as “McMansions” are simply not what this generation wants.

 

• Sellers market: Homes will sell even faster than they did this year, when nearly one in five sold within a week.

 

• Mortgage rates will climb from below 4 percent to 4.3 percent or higher for a standard, 30-year loan. And because of high demand, home prices are expected to keep climbing, pushing the monthly payments 15 to 20 percent higher.

 

• Housing bubble? Even in impossibly hot markets like the Bay Area, analysts aren’t seeing a bubble. They drew that conclusion partly because people are making larger down payments or paying all cash, and partly because sellers are getting their asking price — and then some. Richardson found that in cities such as Oakland, the average buyer has less debt relative to the value of their home — 80 percent — than they did in 2006, before that infamous bubble burst.

 

 

• Roommates: More people will be doubling or tripling up to afford these skyrocketing rents and prices — a la the 1990s TV show “Friends,” Redfin predicts. Finding a compatible roommate of any age will get easier with real-estate startups like Nesterly, which matches younger renters with baby boomers, and CoBuy, which helps people go in on a house together. “We love the innovation,” Richardson quips in her report, “not to mention the new sitcom possibilities.”