CRS, GRI, CRB, Broker Owner
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In March I attended the 2018 RPAC President’s Circle Conference. Lawrence Yun, Chief Economist for the National Association of REALTORS®, was a keynote speaker and once again summarized the national real estate market by the numbers.
Existing home sales ended 2017 at an eleven-year high of approximately 5.5 million units sold, yet still noticeably below the peak years of 2003-2006 where the annual number fluctuated between 6.1 and 7.0 million units. Increased levels of student loan debt are one of the hurdles that has made it progressively difficult for many potential homebuyers to save a down payment to enter the market. New home sales ended up around 600,000 units and were at a ten year high in 2017, though still at about half of the volume of the peak in 2004 and 2005. However, keep in mind that construction during the peak was at unheard of levels when used as a comparison. Median home prices are at an all-time high weighing in just under $250,000, which was a 6% jump from the previous year.
The forecast for 2018 includes an increase in new home sales, flat existing home sales, and moderate median price growth. The other prediction that affects how home sales shake out is the interest rate on 30-year loans. 2017 ended up at 4% which was a nominal increase over the previous two years. However, it is anticipated for this number to continue to rise incrementally.
Tax reform is always significant, and recent changes should be noted; however, please consult your tax advisor for specific questions. The basic overview includes a decrease from $1 million to $750,000 as a cap on the amount of mortgage debt for interest deduction purposes. This change became effective for new mortgages obtained after December 14, 2017. Intuitively this change will not make a difference for the average housing in our area as those who borrow over $750,000 are a minority. The amount of itemized deductions for property taxes, state and local income tax, and sales tax is now limited to $10,000 for both married couples and individuals. This could cause a negative impact on homeowners in extremely high-tax areas of the country. The exclusion of taxation for capital gains received from the sale of a primary residence remained intact at the levels of $250,000 for single and $500,000 for married filing jointly. The amounts for standard tax deductions have nearly doubled which could make itemizing deductions less important. While there is merit that tax savings are welcomed in any form, the effects of tax savings from homeownership potentially decreasing could influence the real estate market. Ideally most homeowners will view the pride of ownership and accumulation of wealth as more important than simply appreciating tax benefits of owning a home. To illustrate, individual wealth of homeowners from 2000 to 2016 increased by approximately $40,000 while that of renters remained stagnant.
A few other statistics to add to the mix by Yun included the homeownership rate beginning to head upward once again, while the percentage of homeowners in the 25 to 34-year-old range has decreased somewhat. One factor to mention again is the difficulty first-time homebuyers are having saving for a down payment. In 2017, 25% of first-time homebuyers reported lack of a suitable savings as a hindrance for purchase versus only 7% of repeat buyers having the same problem. To compare these percentages to 2010, the statistic for first-time buyers was only 16% while repeat buyers was 5%. The view of owning a home as an American Dream is still high on the list for about 80% of those in a recent survey which bodes well for the industry as a whole. Homeownership among single females edged out that of single males 54% to 49%; however, married couples still heavily outweigh single owners. One startling figure in the comparison of 2011 to 2017 is that while income growth was reported at 15%, the price of homes has increased by 48%.
Locally, we continue to experience a shortage of available inventory, especially building lots which may continue to curb new construction starts in 2018.