Perspectives: 2017 Forecast

Well, it’s December; the time of year when we look to our crystal ball and offer our housing market predictions for the coming year. And by crystal ball we mean Windermere’s Chief Economist, Matthew Gardner, who has been travelling up and down the West Coast giving his annual forecast to a variety of real estate and financial organizations. Last month’s surprising election results have created some unknowns, but based on what we do know today, here are some thoughts on the current market and what you can expect to see in 2017.

HOUSING SUPPLY: In 2016 the laws of supply and demand were turned upside down in a majority of markets along the West Coast. Home sales and prices rose while listings remained anemic. In the coming year, there should be a modest increase in the number of homes for sale in most major West Coast markets, which should relieve some of the pressure.

FIRST-TIME BUYERS: We’re calling 2017 the year of the return of the first-time buyer. These buyers are crucial to achieving a more balanced housing market. While rising home prices and competition will act as a headwind to some first timers, the aforementioned modest uptick in housing inventory should help alleviate some of those challenges.

INTEREST RATES: Although interest rates remain remarkably low, they will likely rise as we move through 2017. Matthew Gardner tells us that he expects the 30-year fixed rate to increase to about 4.5 percent by year’s end. Yes, this is well above where interest rates are currently, but it’s still very low.

HOUSING AFFORDABILITY: This remains one of the biggest concerns for many West Coast cities. Some markets continue to see home prices escalating well above income growth. This is unsustainable over the long term, so we’re happy to report that the rate of home price appreciation will soften in some areas. This doesn’t mean prices will drop, but rather, the rate of growth will begin to slow.

Last but not least, we continue to hear concerns about an impending housing bubble. We sincerely believe these fears to be unfounded. While we expect price growth to slow in certain areas, anyone waiting for the floor to fall on housing prices is in for a long wait. Everything we’re seeing points towards a modest shift towards a more balanced market in the year ahead.

This article originally appeared on the Windermere.com blog.

The Trump effect. How will it impact the US economy and housing?

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The American people have spoken and they have elected Donald J. Trump as the 45th president of the United States. Change was clearly demanded, and change is what we will have.

The election was a shock for many, especially on the West Coast where we have not been overly affected by the long-term loss in US manufacturing or stagnant wage growth of the past decade. But the votes are in and a new era is ahead of us. So, what does this mean for the housing market?

First and foremost I would say that we should all take a deep breath. In a similar fashion to the UK’s “Brexit”, there will be a “whiplash” effect, as was seen in overnight trading across the globe. However, at least in the US, equity markets have calmed as they start to take a closer look at what a Trump presidency will mean.

On a macro level, I would start by stating that political rhetoric and hyperbole do not necessarily translate into policy. That is the most important message that I want to get across. I consider it highly unlikely that many of the statements regarding trade protectionism will actually go into effect. It will be very important for President Trump to tone down his platform on renegotiating trade agreements and imposing tariffs on China. I also deem it highly unlikely that a 1,000-mile wall will actually get built.

It is crucial that some of the more inflammatory statements that President-Elect Trump has made be toned down or markets will react negatively. However, what is of greater concern to me is that neither candidate really approached questions regarding housing with any granularity. There was little-to-no-discussion regarding housing finance reform, so I will be watching this topic very closely over the coming months.

As far as the housing market is concerned, it is really too early to make any definitive comment. That said, Trump ran on a platform of deregulation and this could actually bode well for real estate. It might allow banks the freedom to lend more, which in turn, could further energize the market as more buyers may qualify for home loans.

Concerns over rising interest rates may also be overstated. As history tells us, during times of uncertainty we tend to put more money into bonds. If this holds true, then we may see a longer-than-expected period of below-average rates. Today’s uptick in bond yields is likely just temporary.

Proposed infrastructure spending could boost employment and wages, which again, would be a positive for housing markets. Furthermore, easing land use regulations has the potential to begin addressing the problem of housing affordability across many of our nation’s housing markets – specifically on the West Coast.

Economies do not like uncertainty. In the near-term we may see a temporary lull in the US economy, as well as the housing market, as we analyze what a Trump presidency really means. But at the present time, I do not see any substantive cause for panic in the housing sector.

We are a resilient nation, and as long as we continue to have checks-and balances, I have confidence that we will endure any period of uncertainty and come out stronger.

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 over 25 years of professional experience both in the U.S. and U.K.

This article originally appeared on the Windermere.com blog.

Seattle’s Red Hot Housing Market and Its First-Time Homebuyers

dreamstime_s_8927135The S&P Case-Shiller Home Price Index was just released earlier this week ranking the major metropolitan areas across the U.S. by the fastest-rising home prices. While we have not muscled out Portland for the No. 1 spot on the list, we came in a close second having narrowed the gap significantly.

According to an analysis by The Seattle Times, Seattle-area home prices are now rising at their swiftest pace in 2.5 years. While we missed out on taking over Portland for the top spot on the Case-Shiller index, Seattle did increase its lead over third-place Denver where prices only rose 8.8 percent over last year.

Portland, having led the Case-Shiller index all year, had the fastest-rising home prices up 11.7 percent over a year ago. In Seattle, home prices were up 11.4 percent over 2015. Both Pacific Northwest cities saw home costs increase at more than twice the national rate of 5.3 percent. By this point, the “record-high home price” headlines are trite. So what makes this time so important?

Well, for starters, this is the eighth straight month of double-digit growth. That in itself is something fairly noteworthy. Additionally, as The Seattle Times states, homes across all price levels are getting more expensive, but “the biggest increase was in the cheapest set of homes” which were up 12.4 percent. The smallest jump was for luxury homes, up 10.9 percent.

Home prices have been soaring consistently for more than four years having jumped 59 percent since 2012. Starter homes have seen prices jump 75 percent in that time frame. Our local millennials are ready to take advantage of the low mortgage rates, but the starter home just is not what it used to be.

What does this mean for the Eastside?

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We want to take a look at Windermere Real Estate’s latest housing market update where we reported the median home sale price at $750,000. That is a solid 10 percent increase over the home prices we saw last year. By comparison, the median sale price of a single-family home was $630,000 last month.

First-time buyers are faced with these skyrocketing home prices, and even though other housing market factors are playing in their favor, it can be an intimidating time to jump into the real estate world. Make sure you team up with a Windermere broker who can help you navigate the real estate market and can turn your homeownership dreams into a reality.

Read more from our source, The Seattle Times.

What We Know (and Don’t Know) About the Impact of Brexit

Image courtesy of speedpropertybuyers.co.uk/

The decision of the British public to leave the European Union is a historic one for many reasons, not least of which was the almost uniform belief that there was absolutely no way that the public would vote to dissolve a partnership that had been in existence since the UK became a member nation back in 1973. However, rightly or not, the people decided that it was time to leave.

As both an economist, and native of the UK, I’ve been bombarded with questions from people about what impact Brexit will have on the global economy and U.S. housing market. I’ll start with the economy.

Since last Thursday’s announcement, there have been exceptional ripples around the global economy that were felt here in the U.S. too. This isn’t all that surprising given that the vast majority of us believed that the UK would vote to remain in the EU; however, I believe things will start to settle down as soon as the smoke clears. The only problem is that the smoke remains remarkably dense.

The British government does not appear to be in any hurry to invoke Article 50 of the Lisbon Treaty, which allows a member country to leave the conglomerate. Additionally, nobody appears able to provide any definitive data as to what the effect of the UK leaving will really have on the European or global economies.

As a result, you have those who suggest that it will lead to a “modest” recession in the UK, as well as extremists who are forecasting a return of the 4-horsemen of the apocalypse. But in reality, no one really knows, and it is that type of uncertainty that feeds on itself and can cause wild fluctuations in the market.

It’s important to understand that last Thursday’s vote does not confirm an actual exit from the European Union. There is a prolonged process of leaving that is set out in the EU Treaty which requires a “cooling off” period. And during this time, even confident political leaders, such as Boris Johnson who championed the exit campaign, might be tempted by reforms that would see Great Britain actually remaining in the EU.

The EU itself has been shaken by the vote, and there are already signs that many of its leaders are talking about moving away from the Federal structure of the Union in favor of a looser, intergovernmental agreement, that would allow greater sovereignty for its member states.

This is clearly an obvious attempt to accommodate what is already a groundswell of opposition to the Union that is much wider than just Britain, and now includes France, Spain, Greece and Portugal, all of whom are considering their own exits.

So what does this mean for the U.S.?

As far as any direct impact of the Brexit on the U.S. economy is concerned, I foresee a continued period of volatility given the aforementioned uncertainty. That said, any predictable effects on the U.S. will be limited to a “headwind” to growth, but not enough to drive us into a recession. Our financial system is solid and U.S. exposure to European debt is still limited. I wouldn’t be surprised to see a slowdown in U.S. exports as the dollar continues to gain strength against European currencies, but those effects will be fairly modest.

As for the impact on housing, U.S. real estate markets could actually benefit. Uncertain economic times almost always lead to a “flight to safety”, which means global capital could pour into the United States bond market at an aggressive rate. With this capital injection, the interest rate on bonds would be driven down, resulting in a drop on mortgage rates. And a drop in mortgage rates makes it cheaper to borrow money to buy a home.

On the flip side, one thing that concerns me about lower interest rates is that it could draw more buyers into the market, compounding already competitive conditions, and driving up home prices. And housing affordability would inevitably take yet another hit.

Let’s not fool ourselves; what we’re seeing is a divorce between the UK and a majority of Europe. And like most divorces, there are no good decisions that will make everybody happy. We need to be prepared for the fact that it is going to be a very ugly, nasty, brutal, lawyer-riddled, expensive divorce.

My biggest concern for the U.S. is that the Federal Reserve must now pause in its desire to raise interest rates (I now believe that we will not see another increase this year as a result of Brexit). This is troubling because we need to normalize rates in preparation for a recession that is surely on the way in the next couple of years. The longer we put that off, the less prepared we will be when our economy eventually turns down.

 

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 over 25 years of professional experience both in the U.S. and U.K. 

 

 

This blog post originally appeared on the Windermere.com blog.

Booming Home Market Rewards Sellers

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The local real estate market has never favored sellers more than it does today. Homes here are selling faster than anywhere else in the country, and home prices have hit new records.

What’s behind the boom?

Are you ready to take advantage of this historic seller’s market?
Get in touch with your Windermere Eastside broker today.