By: Dan Kelly
Your favorite loan officers here at The Kelly Mortgage Team recently came together to analyze the 2017 housing and mortgage market and discuss what 2018 will look like.
To give you the inside scoop, here is our evaluation and predictions.
In the second quarter of 2017, national real estate values finally surpassed their 2007 levels. In fact, homeowners now have a total of $13.9 trillion in equity, the highest ever! It took a decade for the market to make its slow climb back to pre-crisis levels, but we are finally here.
Along with the well-performing market, lenders have also eased some of their credit requirements providing much-needed relief and allowing more access to credit. This has been a benefit to many including first-time and low-income borrowers.
On average, new mortgage balances in the U.S. are $244,000, while the average rate borrowers secured on those loans as of October 2017 was 3.98%, up from 3.62% the year prior. The highest national average rate in 2017 hit its peak in February at 4.27%.
Inventory, Inventory, Inventory
The lack of inventory nationwide was the story of the year. Currently, inventory of mid- to low-priced housing is at historic lows, which has driven prices up and put a lot of low-income and first-time buyers in a difficult position, despite the easing of credit requirements. Part of the blame can be put on baby boomers, who have been enjoying their rising property values rather than selling their houses.
On the other hand, higher-priced homes saw less of an inventory shortage because builders have been focusing on keeping up with demand in this market more than the starter home market.
Local Trends – A Tale of City vs. Suburb
The Philadelphia region saw these national trends play out only in the city and in small, walkable suburban townships, like Wayne and West Chester. Meanwhile, appreciation in the rest of the suburban market remained sluggish. This is illustrated by the fact that since prices hit bottom in 2012, the city’s prices have risen 42 percent, while suburban prices have only recovered 11 percent, which is well below their pre-recession peak.
Why? It seems that the inventory story we are seeing nationwide and in the city is not playing out as dramatically in the suburbs. The current supply of homes in Philadelphia would only last 3.5 months until the last one was sold, while it would take 5.2 months for the supply of homes in the suburbs to sell, making the suburban areas a buyers’ market.
However, the slow rate of suburban appreciation doesn’t mean that the market isn’t active. In fact, sales have been strong in both the city and suburbs, with a total of 23,206 posted in the third quarter. An increase of 8 percent from the third quarter of 2016.
Local Mortgage Rates Remain Steady
According to the Federal Housing Finance Agency, mortgage rates in the area remained steady through the year, averaging in the low 4 percent range. The third quarter saw an average contract rate of 4.02 percent, down from 4.22 percent in the first quarter, with an average loan amount of $297,800 and purchase price of $386,800.
Rising Tide to Keep Rising
The city’s momentous housing growth will be spurred by the fact that the millennial population here is growing faster than anywhere in the country. That means first-time homebuyers are going to continue to jump into the market and developers are going to continue to accommodate their taste for urban living in places like Fishtown, Point Breeze, and Manayunk.
We believe that the suburban market will begin to see appreciation to match its transaction volume. In an effort to lure the next generation of buyers, there is development on the docket up and down the Main Line from Bala Cynwyd to Malvern as well as big investments in places like King of Prussia and Conshohocken. As millennials begin having children or are priced out of Center City, the suburbs are going to see a spike in demand and prices.
Tax Reform Questions
According to several real estate organizations, some of the recent tax reform proposals could dampen sales forecasts for 2018. The biggest question will be if and how much mortgage interest deductions are cut. At the same time, lower taxes will mean more disposable income for many buyers. This is definitely something we’ll be keeping an eye on.
2018 Is Going to Be A Good Time to Buy
2018 looks like it will be a great time to buy as rates will remain steady during the early stages of 2018. However, all signs point that 2018 will be a rising rate environment and its anticipated that we could end the year in the 5.0% range or higher. Considering that we also expect to see prices continue their slow and steady climb, if you are considering purchasing or refinancing, we would recommend a ‘sooner than later’ approach. Our team at Kelly Mortgage can help you explore your options and find the best fit for your situation and the current market. Contact us for help regarding your mortgage needs today!