Many variables go into analyzing and predicting what to expect from the CNY real estate market for 2018. Our local market experiences many of the national trends, but on a delayed basis. When the national trends finally do appear locally, they are less intense or impactful here. Let’s cover some major categories and see if we can’t read the tea leaves to project for the CNY real estate market for the 2018 season.
Real Estate Market Indicators
The real estate market has recovered from the bubble burst of 2007-2008. Membership in the National Association of Realtors® continues to grow. This is a strong signal that there is an expectation that the market is strong and will continue to be strong since more individuals are choosing to move into real estate as a career.
Foreclosures are declining while work continues to resolve the number of “zombie” foreclosure homes left over from the 2007-2008 bubble burst and its aftermath. In fact, homeowners who lost their homes to foreclosure during the bubble burst are now beginning to re-enter the market as they recover from the damage to their credit scores experienced in the foreclosure.
Home owners now have equity in their homes after the bubble burst. Even in CNY where appreciation is a foreign term, most home owners are now in the black. Part of that reason is that home owners held on for dear life when the bubble burst rather than loose to depreciation. The historic norm for home owners staying in their home is 5-6 years, but in 2017, it was 10 years. The rise in number of years home owners are staying in their homes is showing signs of slowing from nine years in 2011, where home owners held on an extra year for each year beginning in 2008. Additionally, baby boomers have delayed downsizing, partly due to adult children still living at home.
First-time home buyers as a percentage of all buyers is a critical indicator in determining market health. In 2017, the share of first-time home buyers was 34%; down from 35% in 2016. Since 2011, the share of first-time home buyers has been below the historical norm of 40% as first-time home buyers wrestle with tight inventory, rising home prices, rising rents, and high student debt loads. An increasing share of first-time buyers (21%) moved from a family or friend’s home directly into home buying. The desire to own a home of their own was the largest reason (65%) cited by first-time home buyers in 2017.
Locally, the 2015-2016 market became segmented. Homes in the low $200Ks and less were flying off the shelves while higher priced homes had difficulty finding any interested buyers. When the few interested buyers made offers, they were significantly discounted from list price. In 2017, higher price ranged home buyers returned, and that segment of the market showed life after a two-year lull.
Economic and Political Indicators
During 2016, some major corporations cancelled plans to move jobs outside the US, saving jobs here at home. There has been significant progress in reducing regulation red tape for businesses and the Tax Cuts and Jobs Act became effective in 2018. The stock market has always been an indicator of future economic conditions, so it is hard to project gloom when the stock market rose more than 25% during this past year and continues to break records.
Mortgage interest rates were projected to rise for the past two years, but failed to do so. With a lackluster economy before the most recent elections, rates were kept low to stimulate economic growth. When money flows into the stock market, some of it comes from investments in the bond markets. When the stock market is going up, mortgage interest rates increase to keep inflation in check and to attract money back into the bond markets.
The country is still deeply divided, but festering issues are at least being discussed and effort is being expended to negotiate towards something that may become codified. Washington is still gridlocked and dysfunctional, but there are signs that the trend may be turning away from record low expectations and performance.
Expectations for the CNY Real Estate Market for 2018
Lack of inventory or availability of homes for sale will continue to be the biggest negative for this year’s market. However, homeowners have equity, the economy is getting better and adult children appear to be moving out of the basement into first-time homes of their own. Homeowners have stayed in their homes longer, many deferring downsizing while they continue to age themselves. If long-time home owners don’t begin to sell or downsize, fate will force them or their children to sell due to the loss of a spouse or both homeowners. Many updates have been seen in the county real property records where older home owners are creating trusts to plan for these contingencies.
Changes to the tax law that became effective this year may cause depreciation in higher price range homes. When the combination of mortgage interest and property taxes is not high enough to itemize ($12,000 for single filers and $24,000 for married filing jointly), expect buyers to look elsewhere or demand discounts. Owners of homes in this situation need to decide this year whether to stay in place or sell before buyers become fully aware of the consequences when they file under the new tax law in 12-15 months.
Expect mortgage interest rates to rise this year. Most projections are for the high 4% range, possibly lower 5% range. Although not a significant increase, nobody wants to pay more than necessary. Buyers should continue to be plentiful this season. Downsizing sellers will realize that this year is the optimal year to sell.
Buyers will continue to face stiff competition, especially if downsizing sellers enter the market in significant numbers. National Association of Realtors® statistics show that finding the right home is the major obstacle in the home buying process. Buyers who used a real estate agent shortened their process by at least 2 weeks. With the expectation of buyer competition and multiple offer situations continuing for 2018, professional real estate services should be considered essential.
Sellers continue asking more for their homes. Some sellers have been very successful, especially when multiple offers were received. However, overall market trends show that there is some upward movement on closed sale prices, but the most significant achievement realized by sellers has been to sell more quickly. Days on market are in the 30 to 60 day range for most CNY regions. Sellers realizing the highest sale prices through multiple offer situations are typically those who have prepared to list their homes, advised by professional real estate agents. By making improvements, completing deferred maintenance, staging and/or de-cluttering, they started their home selling process well before the “for sale” sign went into the yard.