By Nicolas Jonville, Jonville Team-Keller Williams Realty
It’s that time of year again for our market update. 2018 marks our 16th year serving San Diego county and we have experienced all kinds of market conditions. Home prices have now returned to the boom levels of a decade ago, exceeding them in some of our neighborhoods. We will review the current market situation to gauge what direction this market is likely to be heading.
2017 was another strong year
The US home prices grew by 5.5% in 2017, according to the National Association of Realtors. In comparison, California home prices grew by 7.6%, while San Diego county over-performed. According to the San Diego Association of Realtors, our San Diego county market for attached units/condominiums increased by 11.5%, up $42,000 ($407,000 median price in Dec. 2017) and an 8.5% increase for single family residences, up $47,750 ($612,750 median price in Dec. 2017). Overall pending sales decreased 2.9 percent, landing at 15,478 residential units to close out the year, again due to low inventory.
Southern California’s six-county market hit new records. Per the California Association of Realtors, the biggest increase in So Cal for Single Family Detached was in Los Angeles county with a 10.6% annual jump for a median of $577,000, while Orange county had the least increase in So Cal, but still had strong growth of 5.4%, and the highest median at $785,000.
The low inventory level has been the main driver for the 2016 & 2017 price increases, with far more buyers than properties available for sale, frequently creating multiple offer situations. The insufficient level of new construction, particularly in the entry and mid-level sector, has been supporting this lack of supply while the desirability of our neighborhoods, combined with low interest rates, have been fueling the buyer demand.
Prices at their highest level…is this another bubble?
On the surface, today’s housing market looks suspiciously similar to the pre-recession years, with fast rising home prices now at a record high. However, a deeper analytical assessment reveals major differences backed by economic fundamentals.
In comparison to pre-recession years:
• We are experiencing inventory levels that have been down for several years now, and that trend is expected to continue in 2018. However, there are differences between the larger more expensive properties and the entry and mid-level: Higher priced homes can have multiple months of inventory while more affordable homes are experiencing weeks of inventory – this obviously varies by neighborhood.
• Lending standards today are the tightest they have been in nearly 20 years. In comparison, the crisis 10 years ago was fueled by foreclosures and short sales, often due to loans that borrowers should have not been able to obtain, or loan programs that should have never existed.
• Flipping or investment purchases became increasingly mainstream, with amateur investors taking on multiple loans. Today’s tight lending environment supports a much stronger foundation of real estate ownership.
• Record low unemployment levels and our diversified growing regional economy is another pillar against a downturn of the real estate market, and millennial job growth has also contributed to rising demand.
The low interest rates are keeping the demand high and the homes relatively affordable, with a 30 year mortgage rate around 4% (but expected to increase by about 0.5% this year, still remaining near low historical levels).
According to recent statistics, only 7.5% of San Diego county sales were distressed properties in 2017, down from 8.5% in 2016, a significant improvement, while only about 6% of homeowners have negative equity in their home, v/s over 10% in the US…another protection against a meltdown of our local real estate market.
The average rent increase in 2017 shows another 5% gain in the county, causing more renters to consider a home purchase.
The new tax bill will allow some to benefit from more disposable income. The National Association of Home Builders Chief Economist Robert Dietz says: “The income effect of that is that most people are getting a tax cut—which should help (buyer) demand.”
While these market statistics and economic fundamentals are evidence of a strong real estate market, some challenges need to be considered as well.
Regarding the new tax bill, NAR/National Association of Realtors reports changes that could be challenging the market:
• The final tax bill reduces the limit on deductible mortgage debt to $750,000 for new purchase loans taken out after 12/14/17 and it allows for only a now reduced itemized deduction of up to $10,000 for the total of state and local property taxes and income or sales taxes. “Most homeowners fall below that amount, so the impact of the change will be minimal in most places”, says Lawrence Yun, chief economist at the National Association of Realtors (The above is not to be taken as tax advice: It is important to reach out to your tax professional to inquire about the validity of these changes and how they apply to your personal situation).
• It is important to note that any global crisis, economic or political conflicts, create uncertainty and could result in a buyer freeze, therefore affecting the market.
Our 2018 market expectations
The economic outlook looks bright for our region, with a strong diversified economy and a real estate market more affordable than most other California coastal areas, thus showing a “boost” reserve for San Diego.
This year, we are expecting much of the appreciation to happen in the 1st part of 2018, and likely earlier than previous years, due to low inventory driving prices upwards. Larger more expensive home will likely be stable in price, with higher inventory and less demand, while we anticipate entry and mid-level properties to increase by an average of approximately 5%. The summer and fall will likely level off with a higher inventory of homes for sale, a reduction in demand and mortgage rate increases. Our proven strategy with our clients has been to study the micro-market specific to their property very closely, and to enter the market at the ideal time with a precise price and marketing strategy.
Strategies for 2018
3 main reasons to buy this year:
• Rates are expected to increase again…beat them to the punch!
• Prices are climbing and no major downturn is expected, and rents keep creeping up. History shows that acquiring real estate properties with long term strategy is a very strong wealth building strategy.
- Inventory levels are expected to increase thus offering more choice.
5 main reasons to sell early this year if you are planning on selling in 2018
• Historically low rates are still fueling the buyer demand, but they are expected to rise later this year.
• Tight inventory and high demand makes it a sellers’ market, and inventory is expected to rise…less inventory means less competition.
• Home prices are still increasing but expected to slow down.
• Buyers have cash available for down-payment, due to the strong economy and stock market levels.
• More and more millennials are committing to a home purchase at this time, thus fueling the buyer demand.
If you are staying put:
• Consider refinancing if your rate is above current levels.
• Consider improving your home and keep maintaining it properly. We can assist with current trends and preferred contractors.
In a fast-paced market, many strategies allow for sellers to achieve record breaking sales within a short market time, while still allowing to secure a replacement home. It is essential to implement a comprehensive strategy, prepare, price and market your home effectively…beyond the community and county borders. We are always available to provide advice and services for your real estate needs and look forward to hearing from you soon. ••
Thinking about making a move in 2018?
Contact us today for a personalized real estate consultation. (760) 471-5098