2019 Economic Outlook: Residential Growth of a Quiet Sort

In most areas, sales and price appreciation will remain steady.

Source: 2019 Economic Outlook: Residential Growth of a Quiet Sort

January – February 2019 | by Robert Freedman
1901_forecast_ch

Source: NAR Research

Despite rising interest rates and weakening buyer enthusiasm, continuing economic gains mean 2019 will look much like 2018 regarding the strength of the residential market, NAR Chief Economist Lawrence Yun predicts. “It’s going to be more of the same, in terms of growth,” he says.

A wild card is the growing threat of recession fueled by a trade war with China and other countries, but it’s too soon to see how that plays out. “Stock market volatility caused by talk over a trade war is not good,” Yun says. “But economic fundamentals remain strong and should stay that way if normal trade patterns continue.”

Home sales, combined existing and new, are expected to increase a little less than 1 percent, from 5.97 million to 6.1 million. Helping to drive the increase are gains in new-home sales, from 623,000 to 690,000, as builders accommodate the country’s growing population. “Builders will build just because of the accumulated pent-up housing demand over the years from the rise in population,” says Yun.

He’s forecasting starts to rise from 1.26 million to 1.32 million, helping to ease some of the housing shortages that have plagued many markets in the past several years. But the relatively smooth rise won’t be felt evenly across price points and housing markets. Shortages for homes at lower price points will persist, which is the segment where demand remains strongest. That will keep upward pressure on prices, adding to affordability woes for first-time and moderate-income buyers. Inventory shortages have been less of a problem with higher-end homes, so price gains will be slow compared to what’s happening with lower-cost homes.

1901_comm_fc

On the commercial side, practitioners specializing in leasing and property management will continue to do well. The economy is generating a wide range of jobs, keeping upward pressure on demand. But commercial specialists involved in investment transactions will need to be careful. Rising interest rates and a similar rise in cap rates will lead to some shaving in property values. The transaction volumes of properties valued at $2.5 million and above have already started falling. Investment deals in markets outside big urban centers are holding up better and should continue to stay solid. (See Commercial Trends charts.)

Two markets that can expect a strong boost in property values, both residential and commercial, are Arlington, Va., and Queens, N.Y., which are the newly named locations for online retail giant Amazon’s headquarters expansion. Property owners should benefit as the areas see an influx of highly skilled, well-paid employees. But Amazon’s arrival will force local rents to rise, which will hurt other workers whose wages are lagging.

Tax Law Impact

Also dampening price gains of expensive homes are changes to federal tax deductions enacted at the end of 2017. The Tax Cuts and Jobs Act lowers the cap on the mortgage interest deduction from $1 million to $750,000 and also places a $10,000 cap on state and local tax deductions. Those caps could cut into the tax benefit for many owners of costly homes, especially if they’re in states with high property taxes. Increases in the standard deduction mean that fewer owners will be opting to itemize their deductions any way.

Yun says in pricey markets, like some suburban areas of Chicago, owners are starting to have trouble finding buyers who don’t want to put a lot of money into a house if they can’t fully deduct property taxes. “We have to wait for actual data to come out, but anecdotally, the tax law might be playing a role in slowing sales of upper-end homes,” he says.

Look for price gains to slow in once-hot markets like Denver; Seattle; Austin, Texas; and the San Francisco Bay Area. Costly bedroom communities in high-tax states such as New Jersey, Connecticut, and Illinois could experience price reductions. Outside of these pockets, prices are expected to show the same modest gains as those of the last few years, so look for existing-home appreciation of 2 to 3 percent in 2019 overall.

Yun sees interest rates continuing to rise moderately, from about 4.8 percent at the end of 2018 to 5.5 percent by the end of 2019. But because builders are stepping up starts and the broader economy is expected to stay on a steady upward trajectory, the rise in interest rates shouldn’t have a dampening effect. Look for the economy to grow 2 percent and job gains to remain solid at 1.5 million.

It’s not just the solid economy that will keep housing on an even path, Yun says. Mortgages over the past decade or so have been among the best-performing ever, thanks to solid underwriting by lenders. As a result, delinquencies and foreclosures are expected to remain low.

“Housing remains our nation’s best and safest wealth builder over the long term,” Yun says. “The market this year will not be exciting, but it will be solid and in positive growth territory. Only in previously hot markets will we see some slowdown, and that is not a bad thing, because it will help put prices more in line with people’s ability to buy.”

Advertisements

How Tariffs Could Trickle Down to Your Kitchen Remodel

Original article by Inti Pacheco @ wsj.com

The U.S. has agreed to suspend a planned January increase in tariffs on $200 billion in Chinese goods to 25% from 10%, as the two sides negotiate on trade. But tariffs are already having an impact in kitchens across the U.S., and the truce isn’t expected to soften the blow.

Just about every material you’d need to remodel a kitchen is now subject to the earlier round of tariffs. Many U.S. vendors import the majority of their materials from China. Flooring, cabinets, countertops, sinks, refrigerators and lighting fixtures are on the list of imports from China that now have a 10% tax, as are many of the materials used to make them, from plywood and quartz to stone and granite.

Companies across the construction supply chain have tried to mitigate the impact, including by looking for alternative suppliers in neighboring countries like Vietnam and Cambodia or loading up on inventory in the event that the tax jumps to 25% in January. But many say they have had to raise prices to offset the effects of tariffs. American suppliers are now raising prices as well, as tariffs on foreign products have boosted demand for theirs.

Companies say prices will remain elevated even if the U.S. and China reach a trade deal in which Washington would hold off on future tariffs.

The Wall Street Journal spoke to manufacturers and distributors of the various components of a kitchen to assess the added cost of a remodel. We based our price increases on interviews with individual vendors. For the percentage of the budget that each piece of the job makes up, we used a cost calculator from KitchenCraft Cabinetry, a subsidiary of MasterBrand Cabinets Inc., based in Jasper, Ind.

What’s BMR and who can qualify?

close-up-door-focus-101808

I have been asked many times for a question about low-income housing or BMR, such as, “What’s BMR?” or, “Who can apply?” As I have recently helped a client purchased their home under the BMR, here’s an explanation of the program, and how to prepare for the application.

BMR (Below Market Rate) is a homeownership program that provides housing to low and median income families. Therefore, there’re sets of rules such as annual income, assets, first-time home buyer, credit score, debt to income ratio, and homeowner occupancy, etc. Only a household meets those requirements will be considered for the application. The price for this kind of home doesn’t depend on the comparable sales around the neighborhood, but it depends on AMI (area median income). Due to the high demand and low supply, multiple-offer is a common situation in this kind of listing. The BMR house usually has a fixed sales price, which means no overbidding is allowed even in the multiple offer situation. This creates even more challenges to the homebuyer, as no one can offer a higher price to win over the competition. Therefore, to work with an experienced real estate professional on the BMR property is essential.

The process of the BMR purchase is also different than the regular home sale. First, the homebuyer needs to download an application packet from the city website and review the qualification requirements. Second, the buyer needs to work with a lender to get pre-qualified to purchase a home. Please note that the potential financing must meet the city’s requirement. The homebuyer will complete a mandated first-time homebuyer class. Then, work with the real estate agent to find a desirable home for sale, prepare the offer, and submit it to the listing agent. After the offer close date, the city will request a copy of the ratified contract from the seller/listing agent. If the offer is selected to move forward with the seller, the buyer will need to submit a BMR homeownership application to the city’s housing division. Be sure to include supporting documentation for income and asset verification. The city will review the application and qualification materials and determine the eligibility within 10 business days of receipt of completed application. Once it’s qualified, all adult members of the approved household must schedule an in-person consultation with city staff to discuss resale restrictions and ongoing requirements. After the interview, city staff will prepare escrow instructions and submit them to the escrow officer. Buyer will sign the appropriate documents at closing.

What’s the Difference Between Agents, Brokers, and Realtors?

Screen Shot 2018-10-03 at 2.49.56 PMAs a renter, a buyer or a seller, you’ve probably heard the words agents, brokers, and Realtors used to describe the same person who is helping you buy, rent, or sell your house or apartment. There’s even a chance you’ve used these three terms interchangeably. While an agent, a broker, and a Realtor will all help you buy or sell a home, these terms are not synonyms and do mean different things. When you’re building your real estate dream team, it’s important to know the difference between these three professionals so you can pick which one fits your needs best.

Let’s start off with “broker”: A broker usually has more extensive knowledge of real estate law in their county and state, generally has more education, and has completed more real estate classes. They must pass a difficult test to obtain a brokers license. Once a broker is licensed, they can work independently, open up their own brokerage, and hire real estate agents to work under them.

This brings us to “agents”: Agents are also real estate salespersons, but they always work under a broker. They too need to take classes and pass a real estate exam to become licensed in their state, but they generally take fewer classes than brokers.

The biggest difference between a broker and an agent is that a broker can own and run a brokerage while an agent would need to have a broker on the payroll to open up an independent brokerage.

With this in mind, you should always pick a broker because it requires more classes and an extra exam to pass, right? Not necessarily. If you’re into names and designations then choose a broker over an agent, but if you want to do what’s best for yourself then ask what real experience the agent and broker have selling homes.

So now that we’ve sorted out the difference between a broker and an agent, let’s switch gears towards realtors. You could be an agent or a broker and not be a Realtor, but to be a Realtor, you must be an agent or broker. This is because a Realtor isn’t a type of real estate salesperson but instead a designation given to members of the National Association of Realtors (NAR). Realtors can be either brokers or agents, but they also must be part of the organization, sign a strict code of ethics, as well as maintain an additional professional set of requirements.

As Realtors in California, we are bound to a code of ethics standard and have a requirement of passing the course and test every two years in order to keep our Realtor designation.

A Realtor designation means that your agent or broker has committed to keeping the buyer and/or seller’s interest in mind—not personal profit. Generally, having the designation is seen as a surefire way to enter into a more trustworthy relationship during the home buying or selling process. While searching for real estate and choosing who you work with, whether they are an agent or a broker, you should make sure that they also have the ‘Realtor’ designation.

 

So, next time when you have a need of making the home buying or selling decision, who should you turn to? To me, the answer is clear, a Realtor, the most important thing is finding a person who you can trust!

Your rights as a borrower

3939227.xl

When you shop for a mortgage loan, you have certain rights that are guaranteed by the federal government’s Consumer Financial Protection Bureau.

These include the right to:

  1. Receive a credit decision that isn’t based on your race, color, religion, national origin, sex, marital status, age, or whether any of your income is from public assistance.
  2. Shop for the best loan type for you and compare the fees of different lenders.
  3. Know the total cost of your loan including the annual percentage rate (APR), points and other fees. Interest rates vary according to your credit history and credit scores, the borrowed amount and how much you’re putting as a down payment.
  4. Receive a Loan Estimate and Closing Disclosure Form before you agree to the loan and pay any fees. Compare the exact loan product you want as offered by two or more lenders.
  5. Know which fees are not refundable if you decide to cancel the loan agreement.
  6. Ask questions about loan terms and fees that you don’t understand.
  7. Know the reason if your loan was turned down.

Learn the advantages and disadvantages of each type of loan product to choose the best one for your needs. As always, consult your financial advisor before making any decision.