What’s up in real estate and what’s being forecast for the rest of the year?
Prices pulse upward. Inventory stubbornly refuses to become available. Two demographics converge to pressure the tectonic plates of the market: Millennials and Baby Boomers. It’s nothing we haven’t heard before. What’s new this year though proves that the real estate market doesn’t stay the same for long. We’re entering the Spring selling season with some changes from last year…
Interest rates heading up
While the employment situation and the economy has improved, the Fed is now signaling the rise of INTEREST RATES. By year end, it’s possible that we will start seeing interest rates approach and in some cases, exceed 5%. So why does that matter exactly? If rates rise from 4 to 5 percent for a 30=year loan, it would drive up monthly mortgage costs by 9 percent. To a buyer, that’s on top of the already increasing annual price gain of 7 percent annually (we’ve seen 9% in some areas of Sacramento). In comparison, disposable income increased a mere 1.9 percent according to date from the Bureau of Economic Analysis.
If that wasn’t enough, the Tax Overhaul reshaped another puzzle piece by providing more money in most employees’ take home pay while taking away some of the incentives to purchase by capping the mortgage deduction at $750,000 and limiting the property tax and state income tax deductions.
Projections for the 2018 real estate market run the gamut from another year of competing offers and escalating prices to the opposite: cooling off or worse, falling off the cliff.
We’re still seeing strong buyer demand and perhaps part of that is driven by the imminent threat of rising interest rates and yet it’s not a single factor that shapes our market. We have more buyers than homes available and for the sweet spot around the average price point which is now $450k and up in Roseville and Rocklin, there’s often multiple offers. Compounding our shortage is people coming here from the Bay Area and even Santa Rosa who were impacted by the terrible fires that destroyed whole neighborhoods.
On the less rosy side, the chief economist at the National Association of Realtors Lawrence Yun says prices will rise only a moderate 1 or 2 percent this year (but understand that’s nationwide). We expect there to be continued price momentum here because we haven’t solved the inventory shortages. More new homes are being built, but most builders aren’t building for empty nesters (single story homes) or first time home buyers (entry level pricing).
Then there are folks who believe we’re going to see a correction – bubble talk. We don’t really expect a sharp correction, but with the recent waves in the stock market it’s a reminder that if we see a reset or correction, it would be a lucky guess to forecast it. Unless the employment situation changes drastically, the likelihood of a sharp correction probably isn’t in the cards.
So if you’re thinking of buying, I suggest remembering that interest rates are still low and you can buy more house for your money and it will cost you less to own it over the years. Warren Buffett as well as many others remind us that we shouldn’t consider our home an investment even though it’s likely to appreciate over time.
On the other hand, if you’re thinking of selling, try this: use your index finger to draw an imaginary hill and valley. Unlike cresting a physical hill, no one really knows where the top of the real estate price curve is until you’re it’s already shifted down.
If you’re considering making a move, whether buying or selling. Let’s chat. I’ll be happy to show you the pros and cons that face us in this market. Super Bowl Sunday kicks off the Spring Season in our market. Let’s see how we can help you take the field and win this year.
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