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Posted by on Nov 21, 2017 in Forecasts, Jim's Take on the Market, Market Conditions | 8 comments | Print Print

More Predictable in 2018

Last year at this time we were in shock at the thought of what a Trump administration might mean for our real estate market – there was no telling what was going to happen!

It’s not a stretch to say that next year should be easier to predict!

Factors to consider for your 2018 predictions:

  1. Trump will name new leaders of the CFPB and the Fed, and both people should push for easier money.  I don’t think we’ll be seeing no-doc mortgages any time soon, but the new regimes could strive for more things like higher production of the low-down-payment Fannie/Freddie loans (not that the lower-end markets need much stimulus!).
  2. Goldman Sachs said yesterday that they expect the Fed to raise rates four times next year.  But the recent Fed moves haven’t resulted in a corresponding increase in mortgage rates – so we might get into the mid-4% range, which isn’t the end of the world.  The buyers – or sellers – can always buy down the rate if needed.
  3. The tax reform will get watered down and passed when no one is looking, and buyers will forget about it quickly because it’s so hard to calculate the actual impact. Rising rates are much easier to figure.
  4. The overall inventory of homes for sale probably won’t change much.  There might be occasional spurts of listings here and there, but there is still no place for seniors to go that’s better than where they are today.  We should have the same or slightly more estate sales, but no significant increase, and with the taxation so heavy on long-time owners, they and their families will just wait until they croak.
  5. More affluent people from higher-end markets who are thinking about retiring will see coastal San Diego as a terrific option.
  6. Our recent real estate boom since 2009 has caused sellers and agents to be extremely optimistic.  Yesterday an agent complained about getting ‘lowballed’ when she got an offer that was $25,000 under the bottom of their range a week before Thanksgiving.  It will take months – or years – before anyone notices, let alone reacts, to a major shift in buyer trends.
  7. We are numb to the news.  Mass killings are a regular event, sexual deviants are a dime a dozen, and it’s hard to imagine that Trump could say anything that would be a shock now.  The news might be what’s causing buyers to want to hurry up and hunker down!

Expect more of what we’ve had recently – low inventory, and higher prices.  But I do think we are way overdue for sales to decline – I already guessed 5% fewer NSDCC sales in 2018, and it could be worse.

8 Comments

  1. Good predictions:

    #2- I see rates at 4.5-4.75 by the end of December 2018. Just gonna be more expensive to buy less house so at .75 higher if you own your home for ten years we are looking at 7.5% more interest paid and trust me in ten years the price of these houses will be up 30/40%. If you are buying for the long run, lock and load the loan now. Buy down of loan adds to the cost of ownership.

    #3 the tax bill WILL pass and will eliminate SALT and including limiting property tax deduction. Again, more expensive to buy a house with less money available. The limiting of the “flipping” 2 year tax break will result in less inventory both from persons who want to keep property taxs at the lower level and hanging on for the capital gains break (5/8 years). This will be an inventory killer.

    #4 I think both less buyers and less inventory. Until adjustment period is over, towards the end of the year.

    #5 the secret is out about San Diego and compared to SF/SJ we are a bargain, even LA…look for increased demand in the upper level properties especially Rancho Santa Fe, and La Jolla thru Carlsbad. There are some great buys in Rancho Santa Fe right now, a heck of a lot of house for the money, the coast is getting pricy for the last few years but if you can get in entry level say 3 miles from the beach or less, that is an outstanding opportunity…parts of San diego especially South and North park have become very expensive.

    #7 With all of this bad news, people see loss of control in regards to there life, who wants to have a landlord tell them what they can and cannot do, the home is the last vestige of some type of taking control of your own life….with the increase of population coming, just look at the population expected by 2025 which will be in just 7 years…you know it going to get compact..so where do you go to get away from it all…if you afford it Rancho Santa Fe…they have lot size minimums, The coast is pretty well built out so, while a lot people, a heck of a lot less than some of the developments inland look for rebuild.

    I think people will always want a place of theirs to call home, especially in these dangerous and unknown times.

  2. I had zero worries about a real estate market under the Trump administration.

    That would be like worrying about what would happen if Col. Saunders took over our nations chicken industry.

    I am curious about how he’s going to unwind Obama’s massive 7-8 year buying spree in the stock market. I had assumed Obama’s would unwind as he chugged along. He didn’t unwind nothin’! I don’t doubt Obama’s integrity, but there some fiscal snakes under the rug that he left slithering around as he made his exit.

    On the plus side of American life, the news cycle is the most fun it’s ever been since WWIII! Every day something new and exciting. New catastrophes to overcome! New respected public figures exposed as degenerate scallywags to be censored! We certainly live in interesting times, and I’m loving it.

  3. Daytrip:

    I slightly disagree with no worries in the real estate market, but Trump will PROTECT the banks and the trillion dollars of mortage loans that exist, no question, the second the banks get worried just look for the adjustments made by trump himself.

    One simple factor is inflation, it exists and is here, just look at the cost of food/gas whatever, but in building materials I see a jump in the cost of them over the next fives years and government is not getting any smaller..look for even more fees levied against new construction homes…making everything more expensive, regardless of market demand.

    Getting a fixed 30 year loan at 4%, in ten years you wuill say that payment is a “joke”. Inflation is going hit big time and the way to ride the wave is to own real or hard assets that can produce either income or shelter for you.

    Entertainment is ok, but I worry about our kids..how difficult it is going to be for them….renter’s for life…does not sound good. So if you have the ability think look ahead at say a normal 6% interest rate which is 50% of the current 4%. That what are kids are looking at, beside a heck of a lot of more folks here and increased government fees and taxs.

  4. More affluent people from higher-end markets who are thinking about retiring will see coastal San Diego as a terrific option.

    Yes but. And it is a big but. The far larger middle classes will be cashing out and moving elsewhere. Lots of now retiring boomers, lost aerospace, lost expansion will head for cheaper pastures leaving SD with the richest and poorest with little in between.

  5. Lots of now retiring boomers, lost aerospace, lost expansion will head for cheaper pastures leaving SD with the richest and poorest with little in between.

    Agreed, and let’s make sure to include in the group left behind in SD those seniors who stay behind because of capital-gains tax. They might get the $500,000 tax-free but for many who have been here 30+ years, their gain is much larger than that. When faced with having to pay a six-figure tax to the government, seniors sat NO WAY, I’LL STAY! But then they die, and the heirs get it tax-free.

    If NAR really wanted to do something to change the world, they would convince Congress/IRS to change the capital-gains tax. It’s going to be tax-free money any way (once inherited), so why not let the seniors enjoy some of the benefit before they go?

  6. “It’s going to be tax-free money any way (once inherited), so why not let the seniors enjoy some of the benefit before they go?”

    Also, why not allow folks pull a certain percentage amount out of 401K’s without penalty? Lots of folks wouldn’t mind helping their favorite offspring with a healthy down payment, if they could escape the penalty hosing. I like that idea. I think I’ll tweet Trump about this, and let everyone know what happens.

    Disclaimer: Many of my friends agee that I suffer from “Reverse Trump Derangement Syndrome,” That is, I believe Trump likes me, and wants me to do well. The stock and real estate market since November has made my prognosis rather grim.

    Franklin:
    I agree with your inflation prediction.

    Mr. Dawg:
    Good insight!
    https://youtu.be/MDceigcLvMM

  7. no doubt the stock market will roller coaster as the above article indicated, not to the extent they predict, BUT again real estate is a heck of lot better than a piece of paper. Worst case you can get roommates to help pay, again in the depression people needed a place to live, you are still gonna need a place to live if the stock market goes down 40%. It is either pay your landlord or live in your car if you are on the renters side of things.

    2018, I think will surprise people, if the tax restrictions are grandfathered in in terms of interest or property tax deductions look for a RUSH to buy. If you have waited on the fence I would buy and close before 12-31-17..that is where I think the interest limitation will be applied not on 11-3-2017

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