With Terry Story, 29-year veteran Real Estate Agent with Keller Williams in Boca Raton, FL
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Housing Price Gains In 2017
With robust home price gains in 2017, the National Association of Home Builders (NAHB) expects robust gains for the 2018 housing market. The newly enacted tax laws have created a favorable tax climate for businesses, which should spur economic growth, jobs, and wage gains, and keep single-family home production moving upward.
For instance, Walmart—one of America’s largest employers—announced plans to raise their hourly minimum wage to $11 because of lower corporate taxes cuts, and the expectation is that other companies will follow suit. More money in employees’ pockets should boost retail spending and boost the economy, so things appear to be looking up.
Corporate Gains Offset By Regulatory, Lumber Costs
On the flip side, Terry Story reminds us that costs tied to newer building codes, permits, land use, and environmental issues have jumped 29% in the past five years and have significantly impacted affordability for the 2018 housing market.
In addition, a little-known trade issue between Canada and the United States has increased the cost of lumber by 20% over the past year, making new homes more expensive.
While the economy is gaining significant momentum, building costs are also rising. So, it’s a mixed bag.
Mortgage Rates Expected To Rise
Further, with the economy on solid footing, the NAHB predicts an increase in interest rates, with the average 30-year fixed rate mortgage projected to rise to 4.31% in 2018 and to about 4.82% in 2019.
Steve notes that exact predictions in the interest rate world are not really worth that much, however, rates are expected to rise, and potential home buyers should factor that into their home buying decisions. Even so, rates are still incredibly low by historical standards and relative to inflation and should support gains in 2018’s housing market.
Health Of The Real Estate Market Nationwide
Insurers also have a huge interest in the health of the housing sector because of the millions of homes they insure each year. Nationwide Insurance believes that the vast majority of local housing markets are healthy and faring well; they listed 324 markets as positive, 69 markets as neutral, and only seven of them as negative. So, overall, that’s all really good news. One of their concerns, though, is that rising home prices might impact affordability and slow down home purchases.
Housing Correction In The Offing?
The good news is that negatives in the current housing market aren’t likely to cause a repeat of the housing crisis of 2007. Today, housing supply and mortgage credit are constrained, not free-flowing as they were during the boom of 2005, and home prices are rising due to a short supply of homes, not the craziness of 2005s boom.
Terry’s only wishes there was more housing inventory to meet the pent-up supply of buyers and sellers.
Steve recalls the housing bust of 2007, with a glut of homes for sale at very low prices and very few qualified or interested buyers. Now, ten years later, we’re on the other side of the spectrum with prices rising but very few homes for sale.
Since the New Year, Terry has put up several homes for sale and had a lot of people calling her to come out and give them an evaluation of their homes. So, she believes 2018 is going to be a really strong year for the housing market, with more sellers putting their homes up for sale. Amen to that!
Disclosure: The opinions expressed are those of the interviewee and not necessarily United Capital. Interviewee is not a representative of United Capital. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances. The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by United Capital.
Steve Pomeranz: It’s time for Real Estate Roundup. This is the time every single week we get together with noted real estate agent Terry Story. Terry is a 29-year veteran with Keller Williams, located in sunny Boca Raton, Florida.
Welcome back to the show, Terry.
Terry Story: Thanks for having me, Steve.
Steve Pomeranz: It hasn’t been too sunny here lately, has it?
Terry Story: No, it hasn’t.
Steve Pomeranz: But it hasn’t been cold, I will say that.
Terry Story: That’s right.
Steve Pomeranz: Has not been cold. All right, Let’s get started here. So, we saw good housing price gains in 2017. What is the National Association of Home Builders, the NAHB, saying about 2018?
Terry Story: You know, it looks like it’s going to be very favorable. We’ve got newly enacted tax laws, which create…a favorable tax climate for businesses, which should spur jobs and economic growth and, you know, keep single-family home production moving upward.
So, you know, that’s all good. Any kind of ongoing job creation, expected wage increases, et cetera, should also keep the housing market moving forward.
Steve Pomeranz: You know, last week we saw Walmart announce they were going to raise their minimum wage to $11 an hour, based on the fact that the tax cuts they were getting. So they were re-employing some of that money back to their employees. So that’s kind of a good sign. It’s an initial sign. We’ll have to see if more companies follow suit. But Walmart is a huge employer, so it’s pretty meaningful.
Terry Story: Oh, absolutely.
Steve Pomeranz: And the more money people have in their pocket, that ripples through the economy. So you know, things in that case are looking up.
Terry Story: Yeah. And there’s also some regulatory costs stemming from the newer building codes, land use, environmental, et cetera. And that’s actually jumped up 29% in the past five years, so that actually has a significant impact on the housing affordability.
And then there’s something else that’s really … A lot of people don’t realize, but there’s been a trade issue between Canada and the United States on softwood lumber. And the situation has actually increased the cost of this lumber 20%, just in the past year, so that has an impact on the housing market.
Steve Pomeranz: Yeah, so there’s good news and bad news. It looks like the economy is doing well. It looks like it’s gaining some significant momentum, on the one hand. But on the other hand, costs are also rising. So it’s a mixed bag.
Terry Story: Yep.
Steve Pomeranz: What is the NAHB saying about mortgage rates because we’re starting to see interest rates rise? What are their predictions for 2018 and 2019?
Terry Story: Well, what they’re saying is, you know, as the economy continues to strengthen, you can expect that the average 30-year fixed-rate mortgage will be around 4.31% in 2018 and then see another increase to about 4.82% in 2019. That’s what they’re predicting.
Steve Pomeranz: Yeah.
Terry Story: No one knows for sure.
Steve Pomeranz: Well, predictions in the interest rate world are not really worth that much.
Terry Story: Right.
Steve Pomeranz: But it’s something.
Terry Story: It’s a trend that it’s going to be moving up.
Steve Pomeranz: Yeah. So last year, I think the average was probably around three and three-quarters?
Terry Story: Yep, that’s about right.
Steve Pomeranz: So they’re saying 4.3, so let’s call it a half a percent rise or so in the interest rate. So they’re still historically incredibly low.
Terry Story: That’s right.
Steve Pomeranz: Yeah. So that’s not something that you should be … If you’re looking to buy a home, it’s going to make it a little bit more expensive, but still historically speaking and relative to inflation, it’s a very, very good rate. All right. Digging deeper, you know, it’s one thing for the NAHB, the National Association of Home Builders, to make predictions and to give us information, but insurance companies also play a part here because they actually have to put money out. So they have to keep a good accounting on costs.
Now, I know Nationwide Insurance had some ideas about what the health of the real estate market is nationwide. Tell us about that.
Terry Story: Sure. They’re saying that the vast majority of the local housing markets are healthy and faring well. They actually listed 324 markets as positive, 69 markets as neutral, and only like seven of them as negative. So you know, that’s all really good news. One of the concerns that they do have, though, is that the prices are rising rapidly and that draws a concern to them.
Steve Pomeranz: Yeah. So we have on the one hand, a good, again, good national numbers, healthy markets, but as the home prices rise, there’s a serious question about affordability. And then wages have to rise at a certain rate in order to keep up with that. So they’re saying they’re worried about that, too.
Terry Story: Right.
Steve Pomeranz: Yeah, all right. So how does this all compare to the housing boom a decade ago? I mean, where we’ve got a healthy housing market, so I think we’ve made that case.
Terry Story: Yeah.
Steve Pomeranz: But is it anything like ten years ago?
Terry Story: No, and here’s why. You know, the market is supply constraint today and it was not during the boom. And the mortgage credit, while it was more readily available than just a few years ago, it still remains fairly limited in many of the market places.
So basically, what you’re looking at is, you know, there’s this … The reason why prices are rising is due to a limitation of the supply of inventory. So there’s constraint on the amount that’s available. And there are controls on what they’re lending and how they lend money out in today’s market than we saw during the crazy decade of the boom.
Steve Pomeranz: So you’re just saying … and you were part of both. So it doesn’t even feel close to what was going on?
Terry Story: No, it doesn’t. I just wish we had more inventory to sell.
Steve Pomeranz: Yeah.
Terry Story: If we did, then I think the prices would continue to rise. There’s a pent-up supply of buyers and sellers. Many sellers are out there wanting to sell, but they don’t know where they’re going to go. They can’t find anything for sale, so they’re not putting their home up for sale.
Steve Pomeranz: Like a catch-22?
Terry Story: Yeah, very much a catch-22.
Steve Pomeranz: I remember after the housing bust, we were sitting around and there was no business whatsoever. You know, there were plenty of … I guess there were houses for sale and they were for sale at very low prices, but we had … You know, the market had its issues and problems back then.
And now, ten years later, we’re on the other side of the spectrum. And prices are rising, but, you know, there are so few houses for sale that people aren’t selling. But I promise you, Terry, I promise you, that when I sell, you will get my account and I’ll be one house out of many, maybe, that will be for sale. So what’s happening in your neck of the woods, in terms of latest sales?
Terry Story: Sure.
Steve Pomeranz: Anything particularly interesting?
Terry Story: You know, since the new year, we’ve seen a tremendous amount of interest. I’ve put on several homes for sale. A lot of people calling, wanting me to come out and give them an evaluation of their home. So I really believe this is going to be a real strong year. You know, I feel it. I hear it. I’ve been going out on the appointments, and I really think we’re going to see more sellers putting their homes up for sale.
Steve Pomeranz: Okay. Well, hopefully, that’s not wishful thinking.
Terry Story: Actually, I got a great story. I had a guy from 29 years ago, he was one of my very first sales, called me and said, “I don’t know if you remember me, but I told you I would call you when I would sell my house.” And that was-
Steve Pomeranz: 29 years ago?
Terry Story: Yeah.
Steve Pomeranz: Oh, my!
Terry Story: So that was a great story for me.
Steve Pomeranz: Well, you’ve been in the business for 29 years, as we say in the very beginning. So he must have been your first client or-
Terry Story: Yeah, he was the first four months.
Steve Pomeranz: Wow!
Terry Story: I don’t know if he realized that, but I told him.
Steve Pomeranz: That’s amazing.
My guest, as always, is Terry Story, a 29-year veteran with Keller Williams, located in Boca Raton, Florida. And she can be found at TerryStory.com.
Thanks a lot, Terry.
Terry Story: Thanks for having me, Steve.