Let’s take a quick look back at what happened in 2017.
- Active Inventory: A chronic lack of inventory defined 2017 and the year finished at levels not seen since 2013.
- Demand: With historically low interest rates around 4%, demand continued to thrive in Orange County.
- Expected Market Time: Despite the low inventory and hot demand, it was a only a slight seller’s market the entire year.
The 2018 Forecast: More of the same.
There had not been many changes to the U.S. economy. That all changed with the new tax bill that was signed on December 22nd. The mortgage interest deduction was lowered from $1 million to $750,000. Equity lines of credit are no longer deductible. State and local property taxes are capped at $10,000. The cards seem stacked against Californians, certainly Orange County. Yet with chronically anemic inventory and demand juiced by historically low interest rates, the tax bill will not have a major impact on the local housing market like so many fear. Here is our forecast:
- Interest Rates – The Fed will likely increase interest rates three more times in 2018: the first one probably in the Spring, the second at the start of Summer and the final one during the holiday season. By year’s end, expect interest rates to stretch only to 4.25%.
- Active Inventory – the year will begin with extremely anemic inventory that will translate to a good start for housing. Just as in 2017, the theme for 2018 will be not enough home owners opting to place their homes on the market. As a result, inventory will not reach the long term average. Expect inventory to peak in July.
- Demand – initially with an anemic inventory and buyers anxious to cash in on the historically low interest rates before they rise further, will be strong in the Spring Market. Buyers will be willing to stretch the price slightly compared to most recent sales, so expect appreciation of 4% to 5% for the year. Demand will be strongest and most appreciation will occur April through August.
- Housing Cycle – the housing market will follow a normal cycle. The strongest demand coupled with plenty of fresh inventory will occur during the Spring Market. This will be followed by less demand and continued new supply through Summer. From there, demand will drop further along with few homes to enter the fray in the Autumn Market. The year-end Holiday Market will have the lowest demand of the year and few homeowners opting to sell.
- Closed Sales – The number of successful, closed sales will be similar to 2017. There will be higher numbers of “move up” sellers which will be a wise decision as mortgage rates rise in the future and affordability starts to erode.
- Luxury Market – Luxury sales will increase slightly from 2017. The Spring Market will be the strongest for luxury, and the second half will be quite a bit more sluggish.
The bottom line, 2018 will feel a whole lot like 2017 with not enough homes on the market and buyers tripping over each other to purchase. Multiple offers will be the norm under $1 million. The market will favor sellers and buyers will have to pack their patience in order to find their American Dream.
For a consultation on your real estate plans for 2018 or a market analysis of your home, contact The Smith Group.