The 6 Real Estate Trends

By Charlie Ostlund, Ed.D., Realtor, MRS, SRS, ABR

 

Prognostication is unscientific in any field, but in the social science of economics, when human behavior is involved, it is nothing more than a best guess. What eventually plays out can often belie general economic principles, as the “greed and fear” that drive decision-making is often incongruent with conventional wisdom. That said, with the six major trends forecasted by Forbes Magazine for 2018, I’ll attempt to connect those prognostications with the past trends and specific market conditions that generally underpin the Lake of the Woods real estate market.

The six trends below are predictions by Real Estate experts from several prominent aggregators such Zillow, Realtor.com, and others from S&P, and other Brokerages firms as summarized by Forbes Magazine that are anticipated for 2018:

1. A Slow start in 2018
2. Inventory remains problematic
3. Continued increase in prices
4. Rent vs. Buy=Rent???
5. Mortgage Rates remain stable
6. Growing Impact of millennials in the market

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1. In terms of predicting a slow start to this year, if the end of 2017 is any indication the primary aspect that will result in a slow start will be the low inventory of available homes. The end of 2017 had fewer active listings than 2016, but the month of December in 2017 had nearly 40% more homes under contract and pending than 2016-suggesting another busy January for closings as was the case this past year. Clearly the general economic conditions of the region will impact the start of 2018, and most importantly the new tax law will likely have the unintended consequence of seeing some potential homebuyers opting to rent rather than buy, especially for those who choose the standard deduction, which was doubled with the new law. One additional economic factor that will likely influence the decision-making for those looking for an investment/2^nd home purchase, will be the determination as to where to best invest, when the stock market is smoking hot. My personal sense is that given the myriad of circumstances which affect home buying/selling decisions in such a demographically eclectic community such as Lake of the Woods, that this year’s market will continue to be a steady market, perhaps a little slower than last year, but strong in comparison to the past 5 years.
2. As mentioned above, inventory that currently is problematic nationwide, from the viewpoint of prospective buyers, could be alleviated with a wave of new listings coming on the market that have appeal to a wide-spectrum of buyers who have been looking, but not yet found the home of their choice. In the short term the competition for these new listings should contribute to the overall trend of increasing prices. Early in the year, I think clearly it will continue to be a seller’s market; that’s assuming something of national importance doesn’t negatively impact the overall economy.
3. Great segue! Yes, prices will go up until the inventory of homes that have wide appeal to potential buyers exceeds the demand. Basic economic principles will prevail. However, it is important to note that the uncertainty of the political climate, which drives the overall economic conditions impact even Locust Grove. Continued historically low interest rates remaining around 4%, pent-up demand, anticipated tax benefits, potential increasing wages all predicted by some could have a tremendous impact, if realized. The biggest uncertainty, in my opinion, is what the impact will be on those looking for second homes, with the backdrop of a surging stock market and the implications of the tax law.
4. Lake of the Woods has already experienced a significant rise in rent prices, with prices currently ranging from $1,350 to $2,550. Despite continued low interest rates, the new tax law will not provide the enticement of the interest deduction for anyone who chooses the standard deduction. Unless home prices begin to increase dramatically, the new tax law could dramatically alter the perception of the “American Dream of Home Ownership”, and many millennials as well as the aging population will opt to not be tied down by the financial responsibilities that come with the owning a home. Just as today’s workforce should not expect to stay in the same job for 30 years, that the same will apply to a 30-year mortgage (yes-they are connected). There will be a tipping point back to ownership, should rental prices increase too dramatically. In Lake of the Woods, and other communities with an HOA, the trend will continue to be that HOA fees will be rolled into the rental price. The question looms as to how the anticipated special assessments will be handled by owners of rental properties. (I’ll avoid that topic for now) The takeaway should be that given the new tax law, there will be many uncertainties that will impact the question, “to rent or to buy?”. We’ll just have to see how that evolves.
5. Mortgage Rates haven’t been impacted by the micro-moves by the FED over the past two years. So again, unless a seismic economic event occurs, the rates will likely stay between 4-4.5% for most borrowers. Unfortunately, the mortgage rates don’t have anywhere near the impact on many potential buyers as their credit worthiness. We live in a time and culture where we, as a society, mirror the same fiscal approach used by our government; spending more than we earn. The debt to income ratio for many households and individuals disqualifies them from even getting approved for a loan. The causes for this are many, so we’ll save this topic for another post.
6. The impact of millennials on the economy is huge nationally, and is beginning to have a greater impact at Lake of the Woods, in terms of home ownership. Once perceived as a “retirement/weekend” community, the rise in home ownership in LOW by young families continues to be a steady trend. The growing ability of telecommuting, this development of the greater Fredericksburg/Culpepper Regions, and the appeal of living in a recreational community has contributed to the generational diversity of LOW. As a family with three generations here (and up to 2 years ago-actually four generations) Penny & I appreciate the appeal of a diverse generational community. At the risk of being redundant, the question of home ownership in Lake of the Woods, for many millennials will come down to the impact on their personal financial decision-making that results from the new tax law; and the question about whether to become homeowners will come down to the calculus of the cost-benefits of carrying a mortgage and whether they will access the many amenities to the degree that value-added to their lifestyle exceeds the HOA and potential special assessment expenses.

Look for our upcoming articles on:

• Understanding different types of Agency
• The Potential Impact of the New Tax Laws on Homebuyers
• Seller Concessions-Why?
• The Three MUSTS to get your home Ready to Sell!
• More Real Estate Tips to follow… Make sure you subscribe &/or follow us on Facebook to be UP TO DATE in your real estate market.