Top 5 Housing Predictions for 2018

As the first month of the new year closes, we are starting to see the 2018 market take shape, and getting a clear look back at the 2017 year. Last year was a strong one for sellers – interest rates remained low, but are now rising, and refinancing plummeted. So, what’s next for 2018?

Take a look at the summaries of Summit Funding’s Top 5 Housing Predictions for 2018, with commentary from yours truly:

  1. A rise in cash-out refinance

Low-interest rates have fueled buying, kept inventory low, and likely even helped speed up housing recovery in Miami and Houston after their 2017 hurricanes. Interest rates will continue to rise in 2018, but not high enough to deter interested homebuyers. We should, however, keep an eye on a potential rise in cash-out refinance, as Americans’ home equity wealth is at an all-time high. We are also seeing the rise of all-cash purchases, a high rate of home purchase co-borrowers, and increased buying assistance from family. As home prices become even higher — and overvalued, according to CoreLogic — expect to see more parents cash out their home equity to help their adult children begin building their own housing wealth.

  1. Return to services

With higher home prices come great risks and more compromises for homebuyers, who will become ever more reliant on experienced and informed housing professionals to make buying and mortgage decisions. Mortgage rates will continue to become a commodity; homebuyers have access to rates on their devices and know mortgage brokers are quoting from the same rate sheets. As homebuyers evaluate their partners, they should look for realtors and mortgage professionals who offer value that protects the clients’ bottom line. Housing professionals who deliver this will be the ones who can truly stand out and have longevity in this crowded market. A great lender and agent can make all the difference in the world. Be careful you are comparing apples to apples when getting rate quotes, as it can’t be locked in until you get an accepted offer so lenders can you give varying rates as they know they will be different the day you get an offer accepted.

  1. Advancement in housing Fintech

Expect technology to continue to make breakthroughs in housing. The proliferation of information has made everyday consumers more demanding of progress and fairness, which is a good thing. They demand more competition for their business and stronger customer empowerment. New housing financial technology will not just be about faster search results or more photos, it will be expected to serve up more home buyer protection. In 2018, homebuyers will increasingly question why they could sell a home at a loss when realtors still collect their brokerage fees. When they see a pre-closing statement listing fee paid to protect their lenders, they would demand to see the calculation of risks and returns designed to protect their purchase. Getting ahead of these questions and demands will become table stakes in the advancement of housing financial technology.  This may be a ways off.  There is a lot of buyer protection now as a result of the downturn.

  1. Millennials may continue to prolong homeownership

Americans — including millennials — want to own homes; we knew this already. However, millennials may want other things in life more than homeownership, or they don’t want to be “house poor.” Affordability is definitely the top barrier to home buying, no doubt. However, there are increasing indications that millennials are not pulling out all the stops to buy a home even if they could afford one. In ValueInsured’s latest Modern Homebuyer Survey, 36% of millennials who want to buy a home say they are delaying buying in order to keep their options open. Nearly half (47%) of millennials also say they worry their job future is uncertain and want to figure that out first. Instead of paying high home prices, millennials have proven unafraid to give up buying and go back to renting. A generation known for defying conventions and expectations may change the housing market forever in 2018 if they say “enough” to high home prices and decide to do their own thing.

  1. The next Seattle or San Jose

In the future, scorching-hot real estate markets will give rise to more calm and cool emerging markets. Places like Provo, UT, Athens, OH and Aberdeen, SD may be hot spots in 2018. More Americans will telecommute to their jobs or shop from their devices instead of at malls. This is simply a fact of life. So, as real estate prices and commercial rents increase, more Asian fusion restaurants, CrossFit studios and organic micro-breweries will open in previously ‘B’ or ‘C’ designated counties. Once upon a time, Portland, OR and Chattanooga, TN were seen as hidden real estate gems, and now they are cities millennials are leaving behind in search of more affordable homes. Millennials’ tendencies to be nomadic and to reject established institutions (or markets), and their sophistication in forming their own community, could prove to be very interesting in challenging traditional housing cycles and expectations.

Stay tuned for December to see if these things panned out or were just a pie in the sky.

Are millennials looking for homes or glorified dog houses?

Everyone loves dogs! I love my dog! You love your dogs, too! It seems that millennials especially like their dogs, as a recent Time article explained that “space for a dog” is the third-most common reason cited by millennials for buying a home in today’s market.

What really struck me about the article is this: “space for a dog” is listed ahead of “children” or “marriage” as reasons for purchasing a home. It came in only behind “more living space” and “building equity.”

Now, isn’t that interesting?  We know millennials are getting married later and having fewer children than previous generations, and the housing market has become so expensive across the county that it prices out people who have spent money on marriages and providing for children, but it’s still surprising to see it behind a reason like “space for a dog.”

The rental market prices have also skyrocketed, which makes me think that millennials would rather pay a mortgage in some cases and have their own home with ample room for their four-legged friends, than pay a monthly rent in properties with strict pet policies.

I guess you can always buy a home first, let your dog break it in, and then bring in a partner and children! Whatever works! It’s just funny to see the difference between their generation and mine, and why they pursue home-buying.

Let’s talk about Millennials and Real Estate

My sons are Millennials. My Walnut Creek Lifestyle freelance writer is a Millennial. More and more of my clients and colleagues are Millennials, as that generation continues to age into home-buyers.

So, realtors like myself are starting to notice more trends with the market geared toward that age group. It’s a different real estate market for Millennials than it was for their parents – nowadays, they are graduating with huge student loan debts, having trouble finding lucrative work out of college, and then struggling to pay sky-high rents and mortgages once they do get jobs.

That said, Millennials are driving the real estate market right now, which has made the following observations more obvious.

From San Francisco realtor John Solaegui:

  • There is a low inventory of single-family homes in San Francisco
  • Millennial buyers don’t care about parking spaces (though this might be more prevalent in San Francisco – it’s contradicted by the graphic above!) with the rise of ridesharing apps – they’d prefer having decks or gardens for outdoor entertaining
  • Areas like Noe Valley, Glen Park, Bernal Heights and The Sunset in San Francisco are extremely popular with Millennial buyers right now

From the California Association of Realtors’ REALTOR Magazine:

  • Millennials are cashing in on equity at a historic rate, thanks to rising home prices
  • One-third of Millennials say they are considering applying for a HELOC (home equity line of credit) in the next 18 months – much more than Gen-X or Baby Boomers
  • HELOC’s are popular with Millennials because they can consolidate debt and afford home remodels with them

I think this is an interesting trend in our market. Home prices are high, but so are the debts and loans owed by Millennials, so we’re seeing more and more interest in new ways around that issue. And even more interestingly, Millennials are changing the way we market homes – who cares about parking when you don’t have a car, right?

The State of Convenience

The California Association of Realtors (C.A.R.) report that 69 percent of Americans are looking for ways to simplify their lives. Furthermore, they say, 74 percent of Americans will walk out of a store – even if they have exactly what that person is looking for – if the service is poor. And 45 percent of U.S. consumers say they are likely to pay for a service that provides extra convenience in their lives. See their graphic below:

StateofConvenience.jpg

So, what’s the conclusion here? Consumers value time, and therefore convenience. This also translates to buying a home. Home buyers these days, especially millennials, want updated and move-in ready homes. They want properties conveniently located nearby public transportation or in an area with a high walking score.

As a seller, taking care of deferred maintenance, updates or remodeling will appeal to these convenience consumers.  Though you can’t change the location, you can highlight positive conveniences. As a buyer, know that living without some of these things may either get you a home or a better deal.