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!

How homebuying and selling has changed over the last 30-40 years.

Thirty years ago in the mid 1980s, our country was embroiled in the Iran-Contra affair, mourning the loss of the Space Shuttle Challenger, following celebrities like Boy George and Mr. T, and Wozniak and Jobs had just rolled out the Apple IIgs. Forty years ago in the 1970s, we were wearing ridiculous clothes as we danced to disco (but not me!), Presiden Nixon resigned after the Watergate scandal, and our country was recovering from the Vietnam War - and yes, we were eating TV Dinners while watching it all on our black and white televisions. 

The housing and real estate market was far different in the 1970s and 1980s, too. Here are 15 trends in real estate over the last 30 and 40 years:

1. First-time buyer rates have dropped

First-time buyers now make up only 32% of the home buying market. That’s the lowest share since 1987 when first-time buyers only reached 30% of buyers (and mortgage interest rates reached 21%!). Just how low is that? For context, the first-time homebuyer rate rates reach a high of 50% by 2010, though the average rate is around 39% over the last several decades. One reason for the low total first-time buyer rate is that Millenials first-time home purchases are only at 34.1%, while younger buyers usually make up the lion’s share of these new buyers.

2. Homeownership rates are also down

Home ownership rates bottomed out at 62.9% in Q2 of 2016, a low since the 1960s. In fact, even with 20% or more down payments, standard 30-year fixed loans and fewer flexible loan and credit options, past generations have owned homes at rates commonly in the 64-67% range. Homeownership did peak at 69.4% in 2004 with ridiculously loose lending standards (i.e. subprime) and booming values, but sunk like a stone after the bubble burst. These days, 37 million households in the U.S. are renting instead of owning their own home, a figure that roughly works out to 1 in every 3 households.

3. Houses are much bigger now (but that trend has slowed)

Just how much has our preference for bigger homes grown over the generations? In 1950 there was an average of 290 sq ft per person in the American household. These days each person has about 924 sq ft in an American household! There’s no doubt that the size of homes has risen precipitously in the past few decades, but that trend started to reverse after peaking with the real estate boom of the mid-2000s, as buyers now prefer a slightly smaller home but with great amenities and features.

4. What’s old is new with multi-generational housing

Back in the 1950s, 60s and 70s, it wasn’t uncommon for several generations of families to live under one roof, with parents and grandparents living with their adult children as they aged, mostly because there were few other living and care options and out of economic necessity. That trend declined in the 90s and 2000s as our economy boomed, homeownership became easier and modernization of our society led to less of an emphasis on traditional family dynamics.

But multi-generational housing is back and in a big way. In fact, these days, 13% of all homes are purchased by multigenerational households. Why are multiple generations in the same family buying a home together? Here are the top reported reasons:

24% Cost savings

23% Adult children moving back in

18% Caretaking for aging parents

10% Spending more time with aging parents

As you can see, there are a host of reasons for multi-generational housing, including the rapidly growing aging population that need more help and care, but also adult children who are saddled with student loan debt so move back in at home until they find a good job and get on their feet.

5. All the single ladies (are now buying homes)

It’s not just married couples buying homes anymore! Forty, thirty and even twenty years ago, it was almost unheard of to see a young single professional woman buy her own home. But we’ve come a long way, baby, and in ’16, unmarried female homebuyers are one of the fastest growing demographics. Now, married couples constitute only 67% of all homebuyers, followed by single females at 15%. That number is especially significant if we look at the fact that their cohort single males make up only 9% of homebuyers, and single women are even buying homes at a rate more than twice as much as unmarried couples (7%).

6. Technology rules

Obviously, in the 1970s and 80s the most technology home buyers and sellers, and real estate agents used was a rotary telephone and a copy machine. Veteran realtors will remember the days not so long ago where real estate books were dropped off weekly instead of home searches taking place online. But these days, just about everything in real estate (as in business) is driven by technology. Consider that as recently as 1995, only 2% of buyers used the internet during their home search, but by 2005 that number jumped up to 75% of buyers, and now sits at 90%.

Consider that:

76% of buyers visit a home after first finding it through an internet search.

43% of buyers looked for properties online as the first step in the process.

89% used the internet throughout their home search.

78% visited more than 3 sites prior to taking action on a real estate site.

Home shoppers aren’t even taking the time to sit down in front of their desktop computers anymore to do these searches, as the majority of online searches take place from a smart phone or mobile device.

7. The role of Realtors has shifted - but is just as important as ever

Despite this increase in technology, both buyers and sellers continue to seek out real estate agents to buy to sell their homes. In fact, the role of realtors has only increased and become more vital in today’s technology and information-crowded world, and increased emphasis on disclosures, excessive paperwork, litigation, insurance, regulations, etc. only make real estate agents more important.

In fact, homebuyers may be looking for homes online now, but they still use agents to set up showings, suggest other homes, and represent them throughout the buying process.

The top six sources for home searches are now:

1. Online websites
2. Real estate agent
3. Mobile website or app
4. Mobile search engine
5. Yard sign
6. Open house

Likewise, sellers are using a realtor to sell their home more than ever. In 1991, about 19 percent of all homes were sold as FSBOs, or For Sale By Owner. But that rate dropped steadily to 13 percent by 2001, 9% by 2010, and now at a 30-year low of 8%.

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Look for part two of this blog coming soon!

10 Real Estate Market Trends For 2016 (Part 2)

It's been a great year for real estate, both nationally and in our own Sacramento region, but what will 2016 hold? Here are five more trends that analysts,  economists, and housing experts expect to see this coming year. To read part one of this blog with trends one through six, click here. 

6. Interest rate rise stabilizes growth

We all know by now that the Fed just raised their benchmark rate by .25 points, which will bump up mortgage interest rates slightly, but that’s not bad news at all. In fact, the Fed is raising rates to temper inflation and slow growth since they see so many positive economic factors, like job numbers and housing. Interest rate increases will be gradual and aren’t expected to hamper buying since any increase will also mean the economy is healthier and jobs and wages heading in the right direction. No matter what, interest rates are still historically so low and the cost of buying is far less than renting in most areas.

7. City living in large metropolitan markets has seen its zenith

The cost of living, housing, and real estate in some large cities like Boston, New York, San Francisco, San Jose, Seattle, etc. have become prohibitive, driving some out of the cities or in search of suburbs or “second cities” that are still affordable. While urban living is still attractive to many Millenials and other young couples, as they age, they’re expected to head out to the suburbs. There, they’ll find lower housing prices, better values, and a better place to raise families. At present time, 37 percent of Millenials prefer living in the city versus 29 percent who prefer suburban living, but that number has shrunk, and faced with the choice of either staying an urbanite or being able to buy a house and move to the next stage of their life in the suburbs, the number of those 80 million Millenials who make the latter choice will be significant.

8. Location, location, bike trails and walking?

The suburbs may see a new influx of migration, but today’s young buyers will be looking for different amenities than their parents and grandparents did. Millenials, young buyers, and new suburbanites would love to recreate some of the access, convenience, and culture of city living, but in their own quieter neighborhoods. That means parks, bike trails, neighborhood markets, cafes, and restaurants, and easy access to trains and light rail for commuting without driving. Builders are keeping this in mind, creating “pocket” communities within greater suburbs for new homeowners to work, play, and raise their families without traveling far.

9. More loan products open the door for homeownership

Even as interest rates rise slightly, lending will be healthy in 2016, invigorated from a diverse new set of mortgage loans introduced into the market that will grant access to new homebuyers. As many Americans can now afford the monthly payment for a home but can’t scrape together the sizable 20% down payment traditionally needed to buy, there will be an array of purchase loans with less money down. In fact, Fannie Mae now has a loan that allows for multigenerational families to spread the cost of homeownership by counting income of boarders or renters and other family members. Likewise, Fannie Mae FNMA and Freddie Mac beginning to purchase loans with only 3% down payments, or 97% loan-to-value products, which is expected to greatly boost access to those loans, as now only about 11% of the mortgage market is comprised of loans with down payments of 3% or less. In all, the Mortgage Bankers Association predicts that new mortgage originations will rise to $905 billion in 2016, up from $821 billion in 2015, an encouraging sign.

10. The West will still be the best

In 2016, we’ll continue the trend set in 2015 of the largest gains in home prices concentrated in the western part of the country. From Denver to San Francisco, Austin to San Jose, Salt Lake City to Seattle, and many points in between, year-over-year gains were up to or exceeding 10% in major western cities in 2015. While those numbers may adjust back down to earth a little in 2016, analysts still expect the best gains for equity in the left half of the country.

So what’s our prediction for Sacramento?

Based on all of these ten factors we laid out and the economic climate of the greater Sacramento region, we predict that single-family home sales will increase by about 6-7 percent in 2016 over this year, and the median home sale price will increase by 7-10 percent.