There have not been many changes to the U.S. economy. No shocks to the economic engine. That all changed with the new tax bill that was signed into law 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 deductions are capped at $10,000. The cards seem to be stacked against Californians and, more specifically, Orange County residents. Yet, with a 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’s the forecast:
• Interest Rates – even with the Federal Reserve raising the short-term rate three times in 2017, interest rates continue to float around the 4% level. The Federal Reserve meets eight times per year and it will most likely pull the trigger on further increases three more times in 2018. Yet, these changes in the short-term rate will not have much of an impact on long-term rates. They do not move together. By year’s end, expect interest rates to stretch only to 4.25%.
• Active Inventory – the year will begin with an extremely anemic inventory, around 3,500 homes, that will translate to a very hot start for housing. Just as in 2017, the theme of 2018 will be not enough homeowners opting to place their homes on the market. As a result, the active inventory will not reach the long-term 8,000 home average. Expect the inventory to peak in July between 6,500 to 7,000 homes.
• Demand –with an anemic inventory and buyers anxious to cash in on historically low rates (many wrongly see the Federal Reserve increases in the short-term rate as a precursor to higher mortgage rates), demand will be strong throughout the Spring and Summer Markets. Buyers will be willing to stretch slightly in price compared to the most recent sale; so, expect appreciation around 4 to 5% for the year. Demand will be strongest, and most appreciation will occur, from April through August, and then will downshift during the Autumn and Holiday Markets.
• Expected Market Time - The expected market time for all of Orange County is 67 days, which is the second best start in the past 13 years. The best start was in 2013 with an expected market time of just 47 days. Based upon the low inventory and hot demand, it will be a solid seller’s market the entire year.
• Housing Cycle – the housing market will follow a normal housing cycle. The strongest demand coupled with plenty of fresh inventory will occur during the Spring Market. This will be followed by slightly less demand and a continued new supply of homes in the Summer Market. From there, demand will drop further along with fewer homes entering the fray in the Autumn Market. Finally, all the distractions of the Holiday market will be punctuated with 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, just over 31,000. There will be slightly more “move-up” sellers, which will prove to be a wise decision as mortgage rates rise down the road and affordability starts to erode.
• Luxury Market – luxury sales will increase slightly from 2017’s record. The Spring Market will be the strongest for luxury, and the second half of the year 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 for homes priced below $1 million. Once again, the market will heavily favor sellers and buyers will have to pack their patience in order to isolate their piece of the American Dream.
Happy New Year! Whatever your real estate needs are in 2018, feel free to call, text or send me an email. Thank you for watching my video and make it a great day!