By: Jim Walberg – Staff Writer for The Bay Area Team @pacificunion
So, another amazing year in real estate has come to a close in the Bay Area. And, 2018 is about to begin. My article is about how my predictions for last year turned out, and what to expect in the East Bay world of real estate in 2018.
What we got wrong in last January’s predictions for East Bay real estate turned out to be very good for Buyers and Sellers.
1. Interest rates would be at 5% or more by the end of December 2017. WRONG! Great news for home buyers. The rates were either side of 4% all year. (I have predicted a 5% mortgage interest rate for the past three years. Some day I will be right.)
2. There would be a 3% appreciation of East Bay home values. WRONG! Great news for home owners! East Bay real estate appreciated between 6% and 8% in 2017.
The predictions we got right for 2017:
- The number of closed escrows for the East Bay would continue to decline in 2017. CORRECT. For the past five years the number of total closed escrows for residential real estate has declined each year.
- The number of non-US buyers of Bay Area real estate would decline. CORRECT. We had only 2% of non-US buyers of Bay Area real estate in 2017 compared to 6% in 2016.
- First time home buyers would represent 25% of East Bay home purchases in 2017. CORRECT. Finally, our real estate market is feeling the impact of the Millennials transitioning from renters to homeowners. We expect this trend to continue.
2017 Bay Area Economic Conditions:
San Francisco was the fastest growing economy among the top 10 US Metro Areas last year, according to data released on 2016 Metropolitan GDP by the Bureau of Economic Analysis. In 2016, the metro’s total economic output rose to $406.2 billion, an increase of 5.4%, San Francisco is the 7th largest MSA economy in the country. This growth pattern is expected to continue. As long as there is a healthy and growing economy in the Bay Area, there will be an appreciating and robust housing market.
2018 Bay Area Real Estate:
AFFORDABILITY is the word all of us are using to describe Bay Area real estate. The Bay Area faces a continued decline of its middle-income residents, continuing increases in home prices, larger household sizes for the less wealthy, more long-distance commuters, and more residents who live on investment incomes, rather than wages, according to the Association of Bay Area Governments (ABAG). New housing construction needs to return to levels not seen since the 1980’s to address the predicted increase in Bay Area population. Regional Forecast for Plan Bay Area 2040,
So, what do we expect for East Bay real estate in 2018:
- Interest rates will be either side of 4.5% throughout 2018.
- Home values will appreciate at 2% for the East Bay. We reached the top of our five-year appreciation run about the middle of 2017. We will move back to a more normal market for the next two or three years. Just an FYI…since 2011 Bay Area home values have increased as much as 72%.
- We will stay in a “Seller’s Market” for 2018, however it won’t be as frantic for Buyers as it has in the past five years. We are still at an all-time inventory low for homes on the market, and it will stay that way for all of 2018. For the last three years the number of closed home sales has declined each year.
- Cost of home ownership in the Bay Area will increase because of the passing of the latest revisions of the Federal Tax Code passed by Congress and signed by the President before Christmas; Mortgage Interest Deduction has been lowered to $750,000; Standard Deductions have been doubled; A cap of $10,000 deduction for state income tax and local property tax.
We still have great confidence in the health of the Bay Area real estate markets. Our Bay Area economy continues to lead the nation and our local unemployment is at record lows. Where there is a healthy economy there are healthy real estate markets. Just in the last four weeks we have seen an increase in home sales which is a predictor of robust first quarter in East Bay real estate.
We are always standing ready to assist with any of your real estate needs or questions. Until next time… Jim Walberg