2018 Housing Market Forecast
Matthew Gardner, Chief Economist of Windermere Real Estate has recently published a forecast for 2018 housing market. Here are his expectations in 2018.
“It’s the time of the year when I look deep into my crystal ball to see what’s on the horizon for the upcoming year. As we are all aware, 2017 has been a stellar year for housing across the country, but can we expect that to continue in 2018?
Here are my thoughts:
Millennial Home Buyers
Last year, I predicted that the big story for 2017 would be millennial home buyers and it appears I was a little too bullish. To date, first-time buyers have made up 34% of all home purchases this year – still below the 40% that is expected in a normalized market. Although they are buying, it is not across all regions of the country, but rather in less expensive markets such as North Dakota, Ohio, and Maryland.
For the coming year, I believe the number of millennial buyers will expand further and be one of the biggest influencers in the U.S. housing market. I also believe that they will begin buying in more expensive markets. That’s because millennials are getting older and further into their careers, enabling them to save more money and raise their credit profiles.
Existing Home Sales
As far as existing home sales are concerned, in 2018 we should expect a reasonable increase of 3.7% – or 5.62 million housing units. In many areas, demand will continue to exceed supply, but a slight increase in inventory will help take some heat off the market. Because of this, home prices are likely to rise but by a more modest 4.4%.
New Home Sales
New home sales in 2018 should rise by around 8% to 655,000 units, with prices increasing by 4.1%. While housing starts – and therefore sales – will rise next year, they will still remain well below the long-term average due to escalating land, labor, materials, and regulatory costs. I do hold out hope that home builders will be able to help meet the high demand we’re expecting from first-time buyers, but in many markets it’s very difficult for them to do so due to rising construction costs.
Interest rates continue to baffle forecasters. The anticipated rise that many of us have been predicting for several years has yet to materialize. As it stands right now, my forecast for 2018 is for interest rates to rise modestly to an average of 4.4% for a conventional 30-year fixed-rate mortgage – still remarkably low when compared to historic averages.
Something that has the potential to have a major impact on housing are the current proposals relative to tax reform. As I write this, we know that both the House and Senate propose doubling the standard deduction, and the House plans to lower the mortgage interest deduction from $1,000,000 to $500,000. If passed, the mortgage deduction would no longer have value for home owners who would likely opt to take the standard deduction.
If either of the current proposals is adopted into law, the potential reduction in mortgage-related tax savings means the after-tax cost of home ownership will increase for most home owners. Additionally, both the House and Senate bills also end tax benefits for interest on second homes, and this could have a devastating effect in areas with higher concentrations of second homes.
The capping of the deduction for state and local property taxes (SALT) at $10,000 will also negatively impact states with high property taxes, such as California, Connecticut, and New York. Furthermore, proposed changes to the capital gains exemption on profits from the sale of a home (requiring five years of continuous residence as compared to the current two) could impact approximately 750,000 home sellers a year and slow the growth of home ownership.
Something else to consider is that all of the aforementioned changes will only affect new home purchases, which I fear might become a deterrent for current home owners to sell. Given the severe shortage of homes for sale in a number of markets across the country, this could serve to exacerbate an already-persistent problem.
I continue to be concerned about housing affordability. Home prices have been rising across much of the country at unsustainable rates, and although I still contend that we are not in “bubble” territory, it does represent a substantial impediment to the long-term health of the housing market. But if home price growth begins to taper, as I predict it will in 2018, that should provide some relief in many markets where there are concerns about a housing bubble.
In summary, along with slowing home price growth, there should be a modest improvement in the number of homes for sale in 2018, and the total home sales will be higher than 2017. First-time buyers will continue to play a substantial role in the nation’s housing market, but their influence may be limited depending on where the government lands on tax reform.”
Brand New Bellevue Neighborhood: The Spring District
Yesterday some of our brokers went to a tour to learn more about Lake Bellevue Spring District. Our broker Michael Link, the President of the Lake Bellevue Alliance with The Spring District, was the tour guide. They previewed some of the apartment homes, experienced one of the best views in Bellevue from the rooftop, and received valuable information about The Spring District and details about different developments in that area.
More about The Spring District
The Spring District is a transit-oriented development and neighborhood that is under construction in Bellevue, Washington. The 16-block, 36-acre development is centered around the Spring District/120th station on the East Link Extension, a light rail line scheduled to open in 2023.
The Spring District is being developed by Wright Runstad & Company in a joint venture with the Shorenstein Company.
THE SPARC Security Properties was selected by Wright Runstad & Company and Shorenstein Properties to help kick off Phase One of The Spring District. Security Properties purchased a 2.5-acre parcel at The Spring District’s southwest corner and opened 309 residential units in late 2016. Aptly named Sparc, this project includes best in class amenities, spacious floor plans, a Bright Horizon’s childcare center, and convenient access to pedestrian friendly transit.
PHASE 2 MULTIFAMILY In addition to the 309 residential units already open at The Spring District, Security Properties is currently under construction for an additional 279 apartments located directly to the east.
PHASE 3 MULTIFAMILY AMLI Residential Properties will develop nearly 1.5 acres of land in the southwest corner of The Spring District with a multifamily project containing approximately 204 units. Construction is underway with completion by late 2019.
A fun activity during the Holidays
The Argosy Cruises Christmas Ship™ Festival is a ship-to-shore holiday celebration that has been a Northwest tradition since 1949. The Spirit of Seattle, the Official Christmas Ship™ is decorated with hundreds of shimmery white lights and sails to different Puget Sound waterfront communities – around 65 in all. Choirs on board the Christmas Ship™ perform to guests aboard as well as to our Follow Boats and to those communities gathered on shore. Select your preferred way to experience the Christmas Ship and prepare for the holiday event of the season!
Buy your tickets Here!
And here is the 2017 schedule…
Windermere Eastside brokers donated $225,000 in 2017
In 2017, 22 organizations on the Eastside were granted $225,000 thanks to Windermere Eastside brokers. The grants help our Eastside community in various ways from providing school supplies and meals to housing needs.
The list of grant recipients
- Acres of Diamonds – $4,000. This grant provides women and children transitional housing and support programs to rebuild lives from domestic abuse and/or substance abuse.
- Assistance League – $15,000. This grant goes to the Operation School Bell program that provides basic items of clothing to low-income students, grades K-12.
- Attain Housing – $56,000. This grant provides affordable housing to homeless families with children as well as case management for setting financial and social goals.
- Backpack Meals – $10,000. This grant provides weekend meals to Bellevue School District students who are homeless and would otherwise go hungry.
- Bellevue LifeSpring – $31,000. This grant supports the Breaktime-Mealtime Program which provides 80,000 meals to children during school breaks.
- Boys and Girls Club of Bellevue – $7,500. This grant supports Project Learn after school and summer camp programs at three low-income housing Clubhouses.
- Eastside Academy – $6,000. This grant pays food expenses for homeless and poverty-level students while they attend this alternative high school.
- Eastside Baby Corner – $20,000. This grant provides essentials like diapers and formula to economically disadvantaged children, from birth to age 12.
- Escape to Peace – $2,500. This grant helps create awareness of sex trafficking of Eastside minors and helps fund a healing center – a safe place for children to escape and to provide healing.
- Friends of Youth – $2,500. This grant helps fund emergency response and shelter, then long-term placement, to children (ages 7-17) experiencing trauma or abuse in east King County.
- Hopelink – $2,300. This grant supports the Pantry Pack Program which provides lunches to poverty-level children in the 36 Lake Washington School District schools.
- Imagine Housing – $5,000. This grant will target under 18-year olds in their Support Services Program that provides affordable housing and life skill case management in East King County.
- Issaquah Community Services – $2,500. This grant will provide emergency aid in the form of utility payments to low-income families in the Issaquah School District.
- Issaquah Food Bank – $2,500. This grant helps maintain a refrigerated box truck utilized as a mobile food bank to remote Eastside communities that have difficulty accessing food bank services.
- Kindering – $3,000. This grant provides developmental support, screening, and early intervention therapies to the very young children of homeless families.
- Lifewire – $20,000. This grant supports the Hotel-Motel Voucher Program, which provides emergency short-term stays in hotels and motels for victim of domestic violence.
- Mamma’s Hands – $15,000. This grant supports three Houses of Hope that house mothers and children from abuse and homelessness and helps them develop individual plans to bring changes to their lives.
- Pantry Packs – $3,700. This grant supports the Lake Washington Schools Foundation’s program that provides weekend, child-friendly food packs to children of qualified low-income families.
- Royal Family Kids Camp – $6,000. This grant supports summer camp for abused, neglected and abandoned foster children (ages 7-11).
- Treehouse – $3,000. This grant supports the Little Wishes Program which allows foster care youth to participate in extracurricular arts, athletics, and other educational experiences.
- Village Theatre – $2,500. This grant helps the Theatre’s outreach to the youth of low-income families so they can have access to theatre and arts education, regardless of their ability to pay.
- Youth Eastside Services – $5,000. This grant supports YES Lifeline, which provides free mental health counseling and substance abuse treatment to low-income East King County youth and families.
Windermere’s Winter Drive Report
Windermere Bellevue Commons collects nearly 60 items for homeless youth!
We would like to take a moment and thank all of our agents and staff who participated in Windermere’s Winter Drive: “We’ve Got You Covered” benefiting YouthCare! Our office collected 58 items including new hats, scarves, gloves/mittens and warm socks for homeless youth.
As part of Windermere’s #tacklehomelessness campaign with the Seattle Seahawks, 37 Windermere offices* in King and Snohomish Counties participated in Windermere’s “We’ve Got You Covered” winter drive. The recipient of these donations was YouthCare, a Seattle-based non-profit that provides critical services and support to homeless youth throughout the Puget Sound area.
Over 3,000 items were collected during the four-week drive, which included some 737 pairs of socks, 391 hats, 467 pairs of gloves/mittens, 111 scarves, and an assortment of other accessories and cash donations.
The folks at YouthCare were all very thankful to receive the delivery of eight bins full of donated items. And to make the day even more exciting, Blitz, the Seahawks mascot, was on site to oversee the delivery of the items to YouthCare!
What’s Happening in the Market
“The Market continues to move fast, however, it is slower than it has been in the last six months.
- Months’ Supply of Inventory is 0.9, the same as this time last year, and is still historically low.
- The percentage of closed sales selling for above list price was 41% in October, down from the peak of 63% in June, but it is still very competitive out there for properly positioned homes. (Price, Condition and Location)
Just under 2/3 of the homes that sold in October 2017 occurred with less than 15 days market exposure. Buyers in the market are knowledgeable, and move quickly for correctly priced homes.”
The Gardner Report – Third Quarter 2017
The Washington State economy added 79,600 new jobs over the past 12 months—an impressive growth rate of 2.4%, and well above the national growth rate of 1.2%. However, as we anticipated in last quarter’s report, we continue to see a modest slowdown in the growth rate as the state grows closer to full employment. Growth has been broad-based, with expansion in all major job sectors other than Aerospace (a function of a slowdown at Boeing). Given the current rate of expansion, I am raising my employment forecast and now predict that Washington will add 81,000 new jobs in 2017.
Given the robust job market, it is unsurprising that the state unemployment rate continues to fall. The current unemployment rate in Washington State is 4.6% and we are essentially at full employment. Additionally, all counties contained within this report reported either a drop or stability in their unemployment rate from a year ago. I maintain my belief that the Washington State economy will continue to outperform the U.S. as a whole. Given such a strong expansion, we should also expect solid income growth across Western Washington.
HOME SALES ACTIVITY
- There were 25,312 home sales during the third quarter of 2017. This is an increase of 3.6% over the same period in 2016.
- Clallam County maintains its number one position for sales growth over the past 12 months. Only four other counties saw double-digit gains in sales. This demonstrates continuing issues with the low supply of listings. There were modest declines in sales activity in six counties.
- The market remains remarkably tight with listing inventory down by 14.2% when compared to the third quarter of 2016. But inventory is up a significant 32% compared to the second quarter of this year. Pending sales rose by 5.2% over the same quarter a year ago, which suggests that closings in Q4 will still be robust.
- The key takeaway from this data is that inventory is still very low, and the situation is unlikely to improve through the balance of the year.
- Given tight supply levels, it is unsurprising to see very solid price growth across the Western Washington counties. Year-over-year, average prices rose 12.3% to $474,184. This is 0.9% higher than seen in the second quarter of this year.
- With demand far exceeding supply, price growth in Western Washington continues to trend well above the longterm average. As I do not expect to see the new home market expand at any significant pace, there will be continued pressure on the resale market, which will cause home prices to continue to rise at above-average rates.
- When compared to the same period a year ago, price growth was most pronounced in Grays Harbor County where sale prices were 20.1% higher than the third quarter of 2016. Nine additional counties experienced double-digit price growth.
- Mortgage rates in the quarter continue to test the lows of 2017, and this is unlikely to change in the near-term. This will allow home prices to escalate further but I expect we will see rates start to rise fairly modestly in 2018, which could slow price growth.
DAYS ON MARKET
- The average number of days it took to sell a home in the quarter dropped by eight days when compared to the same quarter of 2016.
- King County continues to be the tightest market, with homes taking an average of 17 days to sell. Every county except San Juan saw the days on market drop from the same period a year ago.
- This quarter, it took an average of 43 days to sell a home. This is down from the 51 days it took in the second quarter of 2016 and down by 8 days from the second quarter of this year.
- At some point, inventory will start to grow and this will lead to an increase in the average time it takes to sell a house. However, I do not expect that to happen at any time soon. So we remain in a seller’s market.
This speedometer reflects the state of the region’s housing market using housing inventory, price gains, home sales, interest rates, and larger economic factors. For the third quarter of 2017, I have left the needle at the same point as the second quarter. Though price growth remains robust, sales activity has slowed very slightly and listings jumped relative to the second quarter. That said, the market is very strong and buyers will continue to find significant competition for accurately priced and well-located homes.
ABOUT MATTHEW GARDNER
Matthew Gardner is the Chief Economist for Windermere Real Estate, specializing in residential market analysis, commercial/industrial market analysis, financial analysis, and land use and regional economics. He is the former Principal of Gardner Economics, and has more than 30 years of professional experience both in the U.S. and U.K.
10/16/2017 through 11/10/2017
We’re excited to announce that our office is participating in Windermere’s ”We’ve Got You Covered” winter drive benefiting YouthCare.
We’re excited to hold another Windermere “We’ve Got You Covered” winter drive benefitting YouthCare. Each night in the greater Seattle area, nearly 1,000 young people are homeless. And with the winter months quickly approaching, YouthCare is in dire need of survival supplies to keep homeless youth warm and dry during the long, wet winter.
- Warm socks
*New items only, please!
- Please bring your donations by November 10th.
Thank you for your dedication to help others!