2017 is coming to an end and economic experts have begun weighing in on expected trends in the housing market for 2018. Knowing and preparing for changes can help savvy consumers maximize their current real estate investments and/or prepare for new ones. Here are some of the predictions to be on the look for:
Increase in Home Values
It’s a simple supply and demand issue. Low interest rates combined with the largest generation in our country’s history wanting their “American Dream” is creating huge demand. To complicate matters, what is being attributed to emotional distress from the worst financial crisis since the Great Depression, homeowners are choosing to stay in their homes longer than average vice upgrading. Stiff Government regulations have also slowed new construction under normal levels which has further impeded healthy inventory. As a result, home prices continue to rise. According to Core Logic, home prices are supposed to increase 4.7 percent nationally by this time next year, with the Southwest having the largest gains over 6 percent.
“Everyone has been talking about the tight inventory but I think we are OK calling it a straight-up inventory crisis at this point. We just don’t have enough homes.”- Svenja Gudell, Chief Economist at Zillow
Rise in Interest Rates
Economists at the Mortgage Bankers Association (MBA) predict mortgage interest rates on 30 -year fixed-rate loans to rise to 4.7 percent in 2018 and to more than 5 percent in 2019. The Federal Housing Finance Agency (FHFA) agrees rates will hit the mid-4 percent range next year and mid-to upper 5 percent range by 2020. Below are additional the rate projections for 2018.
No Housing Bubble
58 percent of homeowners and 63 percent of non-home owners are concerned about this according to a study by Value Insured, so I have a little more information on this topic. At the end of the day, the 2008 financial crisis stemmed from bad mortgage loan products. If you haven’t seen it, I highly suggest the movie The Big Short for an entertaining explanation of events. Mortgage loan products have since done a complete reversal in terms regulation and compliance in particular with requirements for qualifying and eligibility according the Urban Institute. Urban Institute’s Housing Credit Availability Index is currently lower then where we were in 2001.
“As we compare today’s market dynamics to those of a decade ago, it’s important to remember rising prices didn’t cause the housing crash. It was raising prices stoked by subprime & low documentation mortgages, as well as people looking for short-term gains – versus today’s true market vitality- that created the environment for a crash.”-Danielle Hale Chief Economist for Realtor.com
True market vitality is right. Today consumer confidence is way up. According to the National Association of Manufacturers its notching its best readings since December 2000. This shows Americans are more upbeat in their assessments of both current and future economic conditions. President & CEO of Core Logic, Frank Martell said, “A strengthening economy, healthy consumer balance sheets and low mortgage interest rates are supporting the continued strong demand for residential real estate.”
There are a few key takeaways from these predictions. If you are looking at buying a new home, all this information should create a sense of urgency for you as your purchasing power will only decrease if the predictions above are true. I wrote recently about the cost savings from purchasing in the winter vice the summer, Winter Is Coming…For Home Sales. That single and simple strategy could be your best choice before getting priced out of the market. If you are a homeowner – congratulations you’ve earned some money in your investment! Now is the time to look into getting rid of mortgage insurance (PMI), if you have it, and review your options to tap into your equity gains. These options could provide you additional cash for home improvements or getting rid of student loans.
Whether you are looking to buy, sell, review options for refinance or tap into home equity, I would encourage you to speak to a Mortgage Adviser. Make sure you explain what your short and long term goals and objectives are. More importantly, make sure the Mortgage Adviser ‘hears’ what those goals and objectives are. If you don’t know a Mortgage Adviser, I’m happy to help you. Knowing all your options will ensure you make the best decisions for your current and future financial goals.
About the Author:
Sarah Lindsey is a home loan adviser with over 12 years of industry experience. Her core values are based on one simple approach – provide clients with trusted expertise, personalized information, specific to their needs. Sarah currently serves as a Vice President with Synergy One Lending, is a regular guest on the television show, The American Dream with Craig Sewing, is a resource partner for the San Diego Chapter of the Financial Planner’s Association, is a board member for Junior Achievement (a non-profit focused on bringing financial education to all school age children) and can be heard on the radio station AM 1170 advocating consumer awareness on financing.