10 Real Estate Trends to Watch in 2018. (Part 1)

2018 is here, welcomed with new hopes, optimism, and expectations. And that includes the real estate market, as homeowners, sellers, and buyers alike all have important questions about what the next 365 days will hold.

For the third year in a row now, we've combed the best research by economists, analysts, and experts and summarized it for you with these ten real estate market trends to watch in 2018.

Are you thinking about selling your home and moving up to your dream home in 2018? Finally investing in rental properties? Or maybe selling and downsizing? You'll definitely want to read about these trends so you can make the best, well-informed decision.

10 real estate trends to watch in 2018:

1. Homeownership rises from the ashes

Despite great interest rates and rampant supply, homeownership rates remained dismal in 2017. In fact, with only 62.9% of American adults owning a home as opposed to renting, January 2017 was the worst in almost thirty years. But we saw progress by the close of 2017, with the ownership rate rising to nearly 64%.

2018 will continue that trend of improving homeownership rates, thanks to easing lending standards, favorable interest rates hanging around, and the increased demand from Millennials that want to own a home en masse.

2. Interest rates don’t disappoint

In their December 2017 meeting, the Federal Reserve nudged their short-term lending rate from 1.25% to 1.5%. Typically, we see that ripple out over mortgage rates, too, but economists are pleased to report that interest rates for buyers and refinancers should only increase slightly this year. In fact, most experts are looking at interest rates between 4% and 4.5% this year, which is a tick higher than 2017 but still GREAT if you look at it through a historical lens.

Just as important, banks will continue to ease lending standards and loosen their guidelines as the economy bustles, making homeownership a reality and more affordable for tens of millions of Americans. 2018 will be a great year to buy!

3. Another demographic joins Millennials

We talked about young buyers a lot in 2017, as Millennials were right on the cusp and then exploded into home ownership. In fact, the older Millennial (Gen Y) age bracket makes up about 34% of all home buyers now, and nearly two-thirds of all first-time home buyers! That trend will continue in 2018, with one notable addition: Gen Z.

Born between 1995 and 2001, Gen Z'ers will be graduating college, entering the workforce, moving to cities (their preference), and either renting or, eventually, looking to buy. Their numbers are not insignificant, adding tens of millions of new consumers to the housing market mix over the next year and beyond.

4. While Boomers try to figure it out

On the other end of the demographic range, Baby Boomers will have a huge impact on real estate markets across the country, both because of their sheer numbers and because they face several different and profound challenges. Called the “Silver Tsunami,” over the next 12 years, 75.5 million Americans will be over the age of 65.

A smaller portion will have plenty of funds for retirement and will look to move to higher-end senior communities and other arrangements.

But the majority will struggle, as less than 37% of Boomers have $50,000 in savings – and that's not banking on a diminished post-retirement income and increased medical costs.

Therefore, smart Boomers will explore their options now, and selling an existing bigger home to downsize (and walk away with a sizable profit) is one attractive option in 2018.

5. Metro markets stay hot

Major cities saw huge housing price jumps in 2017, with many western states leading the list. Those will continue n 2018, at nearly the same pace. In fact, analysts look at Seattle as the #1 market to watch for home price appreciation in 2018, followed by Austin, Texas (2), Dallas (4), Boston (10), Miami (11), Atlanta (17), etc.

California markets like Los Angeles (7), San Jose (8), and Oakland (20) continue their torrid pace, as do secondary markets like Sacramento (see below).

But in 2018, look for many southern communities (Nashville, Raleigh/Durham, Charlotte, Charleston, Orlando, Tampa/St. Petersburg, etc.) will shine like never before. 

6. But secondary markets absolutely sizzle!

The rising cost of housing in America's most-desired cities may not be breaking news, but the positively explosive growth of secondary markets is of note. In fact, "second cities" and secondary markets performed extremely well in 2017 for sellers and homeowners, and we expected to see more of the same over the next 365 days.

According to a survey of the “best cities for finding houses for sale and get a great return,” Sacramento ranks #9 in the entire nation with NorCal communities in general representing exceedingly well.

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Look for part two of this blog coming very soon, as we cover 2018’s trends of inventory, technology, tax consequences, and the overall health of the housing market!

The Trump Effect: 12 Ways President Trump may affect the real estate and housing markets. (Part 2)

During the recent presidential campaigning season and the election that saw Donald Trump become our next president, there was little talk about the issues that affect real estate, mortgages and housing. But it was only eight ago during the 2008 race when the collapsing housing market was one of the most prevalent topics for candidates, as the nation was in a free fall of home values due to the mortgage market collapse. 

But now that Donald Trump is officially our 45th U.S. president, his influence on U.S. housing and real estate is a point of interest, once again. While some deride his lack of political experience, there is no arguing with the fact that Trump is one of the most prominent real estate moguls in America, and is looking to make some sweeping changes over the next four (or eight) years that could affect homeowners across the country.

In part one of this blog, we brought you the first six ways President Trump may affect the real estate, mortgage, and housing markets. Now, we'll bring you the final six.

7. Early signs point to Trump bolstering consumer confidence.

A lot of where the housing market turns is determined not just by logic and data, but by the fears, hopes, perceptions and emotions of the masses in the form of consumer confidence.

Therefore, it's understandable that when Trump takes office, financial analysts predict a boost to consumer confidence in Red states (Republican, or those that largely voted for Trump). Meanwhile, people in Blue states might hold off on important financial decisions like buying a new house, hiring more workers, buying a new car, etc. Both of these could become self-fulfilling prophecies in their respective areas, but one thing that is universal is that the business-friendly and pro-growth Trump is expected to stimulate the economy, for better or for worse, with consumer confidence following that trend.

8. It could be easier to get a home loan (again).

President Trump is on record that he intends to encourage banks and lenders to loosen their qualifications for lending on mortgage loans, a stance he confirmed during an August speech at the National Association of Home Builders (NAHB).

With relaxed lending standards, banks will give out more mortgage loans to more people, including those with lower credit, incomes, or people who wouldn’t necessarily qualify now, a change that could really help our 50-year low homeownership levels.

All of this may sound a lot like the mortgage environment back before banks became so gun shy after being ravaged by the mortgage crisis, in a period of unprecedented real estate growth. But will Trump’s policies light a fire under the too-conservative banks, boosting our low home ownership rates once again, or create another white-hot real estate market that’s ready to combust? 

9. By clearing the path for more building, Trump should help increase housing supply.

Our current housing market is characterized by two polar opposite factors - strong demand from buyers, but also extremely low levels of new home construction and supply. In fact, a recent study by the Urban Institute revealed that there are more than 400,000 fewer homes being built than are needed, and in some metropolitan areas (Sacramento!) the situation is even more pronounced.

One of President Trump’s priorities will be to reduce regulatory land-use and zoning restrictions on building,  kick-starting new home construction and eventually better balancing buyer demand and housing supply. In an August meeting of the National Association of Home Builders, Trump said, “there’s no industry, other than probably the energy industry, that is more overregulated than the housing industry. Twenty-five percent of the cost of a home is due to regulation. I think we should get that down to about 2 percent.”

However, Trump’s power to change these regulations will only go so far since a lot of them are enacted on a state and local level, so we’ll have to see how wide the floodgates open on new construction. 

10. Will Trump’s signature unpredictability keep the Fed from raising rates too quickly? 

The Fed is expected to raise interest rates gradually over the next 18 months, but will Trump's influence keep them from raising them too abruptly? With news of Trump's election – and in the month's since - we've experienced an unprecedented stock market rally. But Trump also brings a lot of uncertainty and perceived volatility, filling up newspaper headlines. It's unclear whether the "Trump Effect" will keep driving investors to the stock market, or back into safe vehicles like mortgage-backed securities because of the safety of the real estate market (just like they did with news of Brexit). Trump’s unpredictability – and the erratic nature of how markets and investors have responded to him – should result in the Fed taking a measured, cautious approach to any rate increases.

11. Will the Trump Effect result in lower mortgage rates?

It’s hard to envision mortgage interest rates getting any lower or even staying at the near-historical lows we've enjoyed the last few years. But, like we mentioned above, uncertainty over Trump’s influence on the economy and his unconventional geopolitical maneuvering might actually prolong this period of low interest rates.

If that’s the case, low-interest rates combined with easier lending standards and more supply could lead to another golden era of real estate. However, as we’ve seen before, it can also create a bubble that causes disaster when it inevitably pops.

12. Shake up the Consumer Financial Protection Bureau.

As we’ve seen with the FHA, Fannie and Freddie, etc. Trump is a staunch adversary of big government agencies, and the Consumer Financial Protection Bureau is no exception. President Trump will surely look to trim the fat from the CFPB, or maybe even do away with it altogether. While the CFPB was created along with the Dodd-Frank Act to protect consumers from predatory lending and financial services, Republicans like Trump believe that the agency’s regulatory quagmire prohibits local and regional banks from actively lending to consumers for home mortgages, small business loans, and the like, ultimately making it harder for Americans to buy homes.

12 Reasons we’re absolutely not looking at another real estate crash.

Believe it or not, but the United States is rapidly approaching the 10-year anniversary of the 2006-2007 housing bubble that shook the foundations of the mortgage and real estate industry and let off rippled that led to the Great Recession. It may seem like just yesterday that we were in the midst of those dark days when there was little reason for hope or solace, but things are looking downright rosy now.

But a few financial analysts and media are crying wolf about the possibility of another impending crash in the real estate market. While it’s true that these cycles usually go through 7-10 year trends, remember that ups and downs in real estate values, interest rates, and the economy are completely normal, and it took a Titanic-like confluence of events for the last crash to occur. In large part, we’ve learned our lesson – and so have the banks, government regulators, and financial institutions that were asleep at the wheel – so we’re here to tell you with 100% certainty that we’re not looking at another real estate crash like in the mid 2000s.

Here are the first five reasons why we’re absolutely not looking at another real estate crash:

1. We’re back to responsible loans
Precipitating the mortgage meltdown and subsequent financial crash of the mid 2000s, a record number of homeowners opted for risky alternative loan products offered by the banks, hedging their bets against ever-rising equity. But the with interest-only, short-term ARMs, option ARMS, and subprime loans mostly out of the market these days, American homeowners are again opting for stable, safe, and conservative 30 or 15-year fixed low interest loans. The abundance of loan products that allowed people to easily access money from their equity has also tightened. Add it all up and we have millions of homeowners who are in position to succeed with their loans – not fail.

2. We have equity again
On the tail end of the Recession, interest rates were at historic lows, which in theory should have allowed the majority of homeowners to refinance into low fixed rate loans, saving them on their monthly payments and stabilizing their investments. But there was one important ingredient necessary for them to qualify for refinances: equity. But thanks to steady appreciation in most markets over the last five years, our average equity levels are about at Pre-Recession levels once again. When people have equity in their homes they have many more options - like refinancing, selling, etc. – and are far less likely to walk away, which means we won’t see the same flood of foreclosures and distressed sales again.

3. The Fed interest rate is low
The Fed has kept the rate tied to prime stable for a long time in order to spur the economy, but it’s everyone knows it’s just a matter of time (and Fed meetings) until they do start raising rates. That means mortgage rates will probably go up, too, but that’s actually a good thing for the economy in the long run, as it will signal we’ve reached a period of normalization and economic growth, and inflation fears will be contained. Look for interest rates to creep up gradually over the next year or eighteen months – but stay favorable.

4. Homeownership is near an all time low
Homeownership levels hit their highest point every at the end of 2004 at 69.2%. At the time, it was lauded as a great indicator of prosperity, but it turns out, that number was artificially inflated by a buying frenzy, no money down loans, subprime loan products, and risky loans that allowed buyers to get their keys – but often without a plan or stable finances. Homeownership rates have now dipped to 63.4%, which is the lowest since the mid 1960s. That means we don’t have an imbalance of homeowners compared to supply, and increased demand will probably even out those numbers over time near the U.S. 50-year average at 65.3%. More first time buyers - including a huge influx of Millenials who will be looking to buy in the coming years - means steady pressure on demand - and stabilization.

5. Foreclosures are way down
Foreclosures have fallen dramatically in the U.S. over the past five years, to only 1 in every 1,147 homes. In fact, a total of only 133,811 U.S. properties started the foreclosure process in the third quarter, down 14% from a year ago to the lowest level since 2005. That means the number of loans in foreclosures is 2.1 percent - the lowest level since 2007, according to the Mortgage Bankers Association. While there are a surprisingly high number of bank repossessions that are taking place, those numbers are padded by homeowners who lost their homes during the crash and the bank now finally taking them back – not due to the current real estate climate. The same is true of states with high repossession rates like Nevada, Florida, and California, which are feeling the affects of the bank’s glacier pace of processing zombie foreclosures – not because of new ones.

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Look for part 2 of this blog, where we map out the next 7 reasons why we are absolutely not looking at another real estate crash. And email or contact The Alfano Group if you ever have questions or need help!