10 Real Estate Trends to Watch in 2018 (part 2)

2018 is already well underway and that includes the real estate market, as homeowners, sellers, and buyers alike all have critical questions about what the rest of the calendar year 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 for the rest of 2018 – and beyond. 

In part one of this blog, we covered the first six of these ten trends to watch, so here are the final four (plus, a bonus trend).

Are you thinking about selling your home and moving up to your dream home this year? Finally investing in rental properties? Or maybe selling and downsizing? How will interest rates affect the real estate market?

You'll definitely want to read this so you can make the best, well-informed decision.

7. The GREAT news – experts predict a “soft landing”

Will home appreciation slow in 2018? We certainly hope so.

That may sound contrarian coming from someone that makes their living selling real estate, but the simple truth is that we all still feel the sting from the housing crash and Great Recession, and want to avoid those mistakes at all costs. 

Thankfully, white-hot home appreciation that is based on the "Gold Rush mentality," artificially-low interest rates, and reckless bank lending is a thing of the past.

In today’s real estate cycle, expansion is slowing, which is a completely normal and even healthy process of any market. There are still a whole lot of factors encouraging people to buy homes, as well a few economic fundamentals that point to caution. But that’s the sign of a balanced market, which is always best for everyone. 

Caution, common sense, and the impetus to buy or sell a house ONLY if it’s priced fairly act as parachutes, keeping the housing market from ever falling too quickly. 

And in Sacramento, there are even more factors that point to a home price gains this year, albeit a little bit slower and more measured than the last few years. That should inspire even more consumer confidence that the highs will be rolling hills, not sheer cliffs, and the real estate market will be strong for a long time to come.

8. Housing technology science fact not fiction

We often talk about breakthroughs in new technology for homes and real estate, but it usually applies to space-aged appliances, really cool TVs, and state-of-the-art remotely operated security systems, etc. 

But technology is shooting past luxury amenities and this year, as practical high-tech housing will rule. For instance, the incredible demand for affordable housing (homeownership rates are at an all-time modern low AND rents are rising steadily in most major markets) is pushing companies, investors, and inventors alike to create new solutions. Prefab homes that can be helicoptered in and dropped on location, homes that are 3D printed within one day, and other ingenious home construction advances aren't just a thing of science fiction, but present-day fact.  

Tech evolutions in the luxury marketplace, like sinking floors, shape-shifting walls, and complete automation of every light, door, and system in your home are sure to continue, but technology will really skyrocket when it solves real-world problems for the entire housing market. So,  2018 will be the year we look back and say it was a “tipping point” in that technology. 

9. Inventory better, but still lags

We still don't have enough houses for sale around the country to fulfill the demand, whether new construction or existing homes. In fact, while more projects that were initiated in 2016 and 2017 are finished in 2018 and available for a resident, the inventory shortage still has a long way to go. Somehow, rental prices are surging in most metro markets at that same time as home prices because of this shortage, and that double-edged sword is especially true in the Sacramento area.

Of course, no one could have anticipated the additional home shortage caused by the myriad natural disasters we suffered through in 2017. In some cities and states around the country, millions of homes were lost – for both owners and renters – due to flooding, tornados, wildfires, etc.

But the need for housing also presents incredible opportunities for landlords, investors, savvy homeowners, and even first-time buyers who put in the time and work to find the right home in 2018.

10. Tax bill shakeup

No matter where you sit on the political spectrum, the recent passing of a historic tax bill still poses more questions than it does answers. Will a rising economic tide “lift all boats” – including the real estate market? Did saving (although capping) the Mortgage Interest Deduction make it a non-factor for homeowners? Or, will the sting from new property tax rules further slow homeownership rates? We’ll find out in 2018!

Bonus trend:

Interest rate roundup

In part one of this blog, we pointed to a possible interest rate “nudge” this year, as we predicted 30-year mortgage rates settle somewhere between 4% and 4.5% this year. Since writing that only 45 days ago, guess what happened? As predicted, rates are already hair higher than we enjoyed in 2017, but rates are still FANTASTIC if you view them through a long-term 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 is already turning out to be a great year to buy or sell a home!

10 Real Estate Trends to watch in 2018 (Part 2)

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 well-informed decisions that put the most money in your pocket!

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.

In part one of this series, we covered our first six market trends to watch in 2018, and here are the next four:

7. The GREAT news – the real estate market is expected to cruise, not lose

Across the country, real estate analysts and financial experts are generally in consensus with two predictions for the housing market this year: it will slow down just a measure from its hot pace, and that's also probably a necessary and healthy correction.

In fact, although historical data points to a turning of the real estate cycle to that of contraction, not expansion, within the coming years, our housing market is far different than the conditions circa 2007 that precluded the crash and recession.

For instance, housing is still in short supply, especially in the range of homes for first-time buyers and working-class families, which, conversely, stimulates demand. Unlike the record-high homeownership rate we saw in the mid-2000s thanks to the loosening of credit standards and widespread availability of no-money-down and subprime loans, our banks are issuing a vast majority of conservative 30-year fixed-rate loans these days. 

Interest rates have climbed a tick but still remain extremely low if you zoom out to a historical perspective, which incentivizes home buying, too.

Rents are also rising in most metro areas around the country, making home buying more attractive, and the changes we see from the new tax bill aren’t expected to have such a significant effect to be a detriment for the housing market.

Sure, home prices can’t keep climbing forever, but it looks like we’ll have a “soft landing” in 2018, with moderate home price appreciation in many areas – including Sacramento.

Markets are driven by tangible economic factors like jobs (or unemployment), interest rates, growth, and supply and demand, and those are all point to a gentle shift – not a screeching halt – in the housing market.

8. House tech fantasy finally becomes reality

Every year, real estate and home design blogs (like this one!) optimistically predict that THIS is the year when we see a wave of hi-tech innovations that transforms the common home. And while technology marches on, it’s been adopted reluctantly and incrementally for the common homeowner.

However, THIS is the year when we see a wave of hi-tech innovations that transform the common home!

But this wave of home technology isn’t necessarily just coming in consumer goods like appliances, televisions, built-in computer systems, and electronics, but in construction practices, itself.

In fact, a lot of the advancements we'll see are born from necessity, as builders look at new ways to fill the housing shortage with prefab homes, 3D printed homes and construction materials, and automation that makes beautiful and practical structures far more affordable as well as practical.

But yeah, whole walls that turned into TVs and computer screens would be nice, too!

9. Tax bill shakeup

No matter where you sit on the political spectrum, the recent passing of a historic tax bill still poses more questions than it does answers.

Will a rising economic tide “lift all boats” – including the real estate market? Did saving (although capping) the Mortgage Interest Deduction make it a non-factor for homeowners? Or, will the sting from new property tax rules further slow homeownership rates? We’ll find out in 2018!

The good news is that under the new tax bill, that deduction cap will be reduced, not eliminated. So new homebuyers will still be able to deduct the amount of mortgage interest they pay on the initial $750,000 of their mortgage loan. (Down from the current $1,000,000 cap on MID.)

(It’s worth noting that this only applies to new home purchases going forward, but current homeowners will be “grandfathered in” with the old rules.)

How much of an impact will this make? Most likely, it will have only modest or negligible effect on homeownership and the cost of owning, since the national median home price is only $254,000 (far below the $750,000).

Capital gains were also left intact, so when homeowners sell their primary home (one they’ve lived in at least two of the past five years), they can exclude $250,000 of profits from taxation, or $500,000 for married couples.

But under the new tax codes, homeowners will be able to deduct only up to $10,000 in state and local income and property taxes OR sales and state and local property taxes.

April 15 will be interesting this year – but owning real estate is still one of the best investments you can make, no matter how you add it up!  

10. Inventory better, but still lagging

We still don’t have enough houses for sale around the country to serve demand, whether new construction or existing homes. In fact, while more projects that were initiated in 2016 and 2017 are finished in 2018 and available for a resident, the inventory shortage still has a long way to go. Somehow, rental prices are surging in most metro markets at that same time as home prices because of this shortage, and that double-edged sword is especially true in the Sacramento area.

Of course, no one could have anticipated the additional home shortage caused by the myriad natural disasters we suffered through in 2017. In some cities and states around the country, millions of homes were lost – for both owners and renters – due to flooding, tornados, wildfires, and more. 

But the need for housing also presents incredible opportunities for landlords, investors, savvy homeowners, and even first-time buyers who put in the time and work to find the right home this year.

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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!