2018 What To Expect In The Salt Lake Housing Market
I am going to stick my neck out and make a few predictions. I may be right and I may be wrong. But I am going to call it as I see it.
For the first time home owner an investment in real estate has been the best investment a person with little to no down payment could make. As the median home price has increased from $170.000 to $300,000, a small down payment of 10,000 in 2012 has turned into $130,000 of equity today. This is a yield of almost 1300% In hind sight, making an investment in home ownership was probably the best place a first time home buyer could place $10,000. In addition to these spectacular returns, all home owners who financed any portion of their home has enjoyed and may continue to enjoy fixed rates as low as 2.5% on a 30 year note.
At Crenshaw Realty, we believe that the years of spectacular returns are past. As interest rates begin to increase we believe that several things will change.
For the first time in several years, total sales volume decreased from 18046 in 2016 to 17895 in 2017, a total of 151 fewer home sales, or less than 1% decrease. The decrease is not a significant amount and alone gives no reason to predict the beginning of a trend. However, we expect that total sales volume will continue to decrease for several reasons.
Home owners that currently own a home, have stable lives, and are currently employed have little incentive to move.
Several economist anticipate that sales prices will continue to rise through 2018 due primarily to the lack of inventory. I agree with this anticipation. The question remains, how much will homes appreciate in 2018. We anticipate 3-5%
As interest rates and home prices increase, selling a home and losing the low interest rate with a higher loan amount is not financially favorable. Home owners over the most recent home ownership cycle have opted to stay in their homes for 7 instead of 5 years. As fewer individuals choose to sell, inventory levels will continue to decrease. This combination of higher interest rates, higher prices, and less inventory will lead to a slightly longer CDOM or Cummulative Days On Market. Meaning homes will take slightly longer to sell in 2018. This will be a continuation of a trend that started in 2017 as CDOM increased from 16.125 to 16.667. We believe CDOM will increase to 18-20 days. Buyers won't feel much difference as they submit offers on competitively priced homes.
With the standard deduction for 2018 taxes being substantially increased, owning a home is no longer required to reduce ones income and tax burden. As a result first time home buyers with incomes between $40k-$80khave less incentive to purchase a home for the interest deduction. Many of them prefer to live in a lifestyle that does not include a yard, and home to maintain. With prices increasing and interest rates increasing many of the affordable housing options are condo's, townhomes, and cluster homes similar to rentals. As a result, many of these would be first time home buyers will choose to continue renting and invest their money elsewhere. This allows them to continue with the lifestyle they desire and not be tied to a 30 year mortgage if/when the economy hits a rough spot.
We believe that many sellers will price their home too high and will be required to decrease the list price to entice a buyer. With less inventory, higher prices, higher interest rates, and fewer first time home buyers the Sales price to Original List Price ratio will continue it's decline from 2016 98.72% to 2017 98.55% to 2018 ending up around 98%
So, in summary, home prices will continue to climb, although at a slower rate. Total sales volume will continue to decrease, though not noticeably from a practical point of view. CDOM will also increase slightly, and there will be more sellers that will be checked by the market and forced to drop their original list price in order to sell their home at a more moderate but still higher price than this past year. I would mark this year or next as the year the housing market in Salt Lake County plateaus or peaks with an impending economic recession that will start in 2019 or 2020.