2018 Housing Forecast: Where are we headed?

2018 Housing Forecast
What lies ahead for the local housing market in 2018? We sat down with Windermere Chief Economist Matthew Gardner to get his thoughts. Here are some highlights:

Home prices will continue to increase, but at a slower pace

The strong local economy, high demand and very low inventory will continue to boost home values in 2018, according to Gardner. However, he believes that the double-digit growth of 2017 will moderate, and predicts home prices in King County will rise by 8.5% in the new year.

Mortgage interest rates will rise slightly.

Gardner admits that interest rates continue to baffle forecasters. The rise that many economists have predicted the past few years has yet to materialize. His forecast for 2018 sees interest rates increasing modestly to an average of 4.4% for a conventional 30-year fixed-rate mortgage.

More Millennials will enter the housing market.

Despite the relatively high cost of homes in our region, Gardner expects more Millennials to buy homes in 2018. They are getting older and more established in their careers, enabling them to save more money for a down payment. Many are also having children and are looking for a place to raise their family.

The tax reform bill will have a limited effect on our housing market.

The recent changes to the income tax structure will have an impact on homeowners, but Gardner does not believe that impact will be significant here.

    • The mortgage interest rate deduction will be capped at $750,000 – down from $1,000,000. But according to Gardner, just 4% of the mortgages in King County exceeded $750,000 in 2017. Most buyers of more expensive homes have been making larger down payments, or buying homes for cash.
    • Since the $1,000,000 mortgage deduction cap is grandfathered in for those who have already purchased a home, some homeowners may opt to stay put rather than move. That could result in fewer homes being placed on the market.
    • The tax bill eliminates the deduction for interest on home equity loans. This is bound to slow down the trend of homeowners choosing to remodel their home rather than trying to find a new home our inventory-deprived market.

Bottom Line

The increase in home prices may moderate, but inventory will still be very tight. 2018 is on track to be a strong seller’s market.

Mortgage Interest Rates Near Record Low

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One fallout of Brexit has been a bonus for homeowners and homebuyers. Mortgage rates have fallen to near historic lows.

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Whether you’re a first-time buyer or thinking about trading up or downsizing, rates this low could be a great incentive to start searching for a home.

Are you ready to start looking for a home? Get in touch with a Windermere Eastside broker to answer any questions you have, and walk you through the entire process.

There’s No Need To Panic About Rising Interest Rates


This article originally appeared on
 Inman.com 

After seven years of some of the lowest interest rates in recorded history, the Federal Reserve has decided to raise the key Fed Funds Rate by 0.25 percent, which is causing some to be concerned that it will lead to a jump in mortgage rates and negatively impact the US housing market.

So, the question everyone wants to know is, do we need to worry about interest rates leaping?

While I expect there to be some volatility in rates for a while, I don’t believe the real estate market will implode in a rapidly rising interest rate environment. So, yes, interest rates are going to rise modestly, but no, I don’t think we need to be overly worried about it.

To qualify this statement, we need to understand that mortgage rates do not run in “lock-step” with the Fed Funds Rate. Although the Fed Funds Rate is a bellwether for the greater economic environment, there have been times when these two rates have moved in opposite directions, such as we saw in 2004/2005.

It’s also important to understand that while interest rates for revolving credit, such as credit cards and home equity loans, are tied to the Fed Funds Rate, non-revolving loans – like mortgages – are not. Mortgage rates are tied to bond yields – specifically the 10-year treasury.

So what do I think will happen?

I believe interest rates will rise above 4 percent, but we will not see a sharp spike in rates. The Fed has stated that any upward movement in the Fed Funds Rate will be slow and steady, and will reflect the greater economy. And I believe that mortgage rates will follow suit.  Additionally, mortgage rates have already moved higher in anticipation of an increase in the Fed Funds Rate.

That said, it is worth noting that any weakness in the global economy can actually have a downward effect on interest rates. This is referred to a “flight to quality”. In essence, investors seek safe haven during times of economic uncertainty. If markets outside the U.S. continue to underperform, there will likely be increasing demand for bonds which will drive up their price and drive down interest rates. Between China, the Eurozone, war in the Middle East, and a massive drop in oil prices, it’s certainly possible that the price of mortgage backed securities could rise, leading U.S. mortgage rates lower.

Interest rates could not realistically stay at their current levels forever. But an increase should not be a great cause for concern. Yes, an increase makes mortgages more expensive, but not to a point where they will have a negative effect on home values. That said, the rate of home price growth will undoubtedly slow in the coming year, but that isn’t necessarily a bad thing.

A little perspective might help: the average rate for a 30-year loan in the 1970’s was nine percent. It was 13 percent in the 1980’s and eight percent in the 1990’s. And yet people still managed to buy and sell homes throughout those years. With that in mind, the rate increases we’re likely to see in 2016 are nothing to fret over.

The increase in the Fed Funds Rate should be taken as a sign that our economy is expanding and is a preemptive move to limit anticipated inflation. While interest rates have risen from their all-time low, they are still remarkably favorable. And will remain so through 2016.

 

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. 

Lending Matters: A True Story

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This article was originally written by Steve Tedrow, Windermere Mortgage Services.

Just as a good real estate agent can make a substantial difference in the success of a real estate transaction, the same applies for the lender. We have all heard of and experienced the frustrations of an invalid pre-approval and the difficulties from working with an inexperienced mortgage loan officer. A prime example of this occurred recently.

A borrower had told their real estate agent that they had been pre-approved by their credit union for a $390,000 purchase price. Since the property they wanted to make an offer on was only $289,000, the transaction seemed pretty simple. The agent encouraged them to talk to me to see if we had better options. She also preferred to have someone she knew handle the transaction. Further, it was going to be a competitive offer situation and our closing timeframes are much quicker than an out of state credit union.

After a brief conversation with me, the customers saw the benefit of our experience and also became disheartened with the lack of information they had received from the credit union. They did not realize they had closing costs and prepaids in addition to their down payment. They were not presented with a variety of options.

The customers quickly forwarded their information to me as they were writing an offer on the property. Within about 5 minutes after receiving their information, it became apparent they they were not qualified. The primary borrower was self-employed. Their 2014 earnings were down nearly 70 percent from 2013. Upon further questioning, it became apparent that their “pre-approval” letter was actually a pre-qualification letter (and not a very good one). They were very disappointed that they were not able to proceed with the offer.

There will be a happy ending to this. The borrower’s earnings are much higher for 2015. As soon as they file their 2015 tax returns, they will be able to qualify for what they want and become first-time homeowners. We will restart the process in January and they will be in their new home in the early spring.

If you have already been pre-approved, just remember this example. Lending does matter … a lot.

Get in touch with Steve Tedrow if you have any questions about mortgage lending, applying, or more.