If nothing else, in 2017 the Sales Executives at The Trembley Group Real Estate learned to expect the unexpected, whether it be politics, weather, or the Myrtle Beach and the Grand Strand housing market. Driven by record low inventory, little about the housing market went as forecasted last year. “Nationally, we expected some things would take the pressure off,” according to Jeremy Jenks, Vice President of Sales at The Trembley Group Real Estate. “Interest rates never rose. Construction never picked up enough to meet pent-up demand. Price growth never moderated. None of that happened on any meaningful level.”
Locally, instead the market got hotter: inventory tightened, prices rose, mortgage rates barely budged and, though new home construction picked up at the end of the year, it was not at the starter and median price points where new inventory is needed most. Like the soaring stock market, the housing market often seemed disconnected from the tumult in Washington and natural disasters like Hurricane Matthew. Economic growth and the economic momentum failed to be meaningfully affected by external forces. With few clear signs of supply relief and the impact of the new tax law still being digested, reading the housing tea leaves is particularly challenging this year, but here are a few things the real estate experts at The Trembley Group expect.
Homeowners are still on a roll. Owning a home has been a good investment every one of the six years since housing prices hit bottom. Prices over this period are up more than 30 percent nationwide and Myrtle Beach is not an exception. But can the same growth be expected under the new tax law?
Home prices today are now higher than at the height of the housing bubble six years ago. Today there is no bubble and housing is on a solid foundation. In the bubble, home prices became disconnected from household income. Today, in Myrtle Beach and in most American cities, the typical family has the income needed to purchase the median-priced home at current mortgage rates. And generally, it makes financial sense to own your home instead of renting it.
Despite the raging bull market in stocks, housing has been an even better investment for most homeowners. Almost two-thirds of Americans own their homes, but no more than half own any stocks and only about one-fourth have stock holdings of any consequence. Homeownership is key to the financial security of the middle class.
Moreover, because the typical homeowner has a mortgage, the return on their home equity investment is leveraged.
A typical Myrtle Beach homeowner has a mortgage that is about half the value of their home, the other half being their equity. The return on their equity over the past ten years is more than an astounding 100 percent. Even the booming stock market hasn’t enjoyed those kinds of gains.
Not that too much leverage is a good idea. The obvious lesson of the foreclosure crisis was that too big a mortgage is lethal to a homeowner’s investment. But these days, mortgage financiers are more cautious lenders, and homeowners remain cautious borrowers and are steadily building equity in their homes.
The version of tax reform that passed the Congress and was signed by the President has provisions affecting real estate. Second homeowners can still deduct the interest on new mortgages up to $750,000 and experts predict that many people will no longer itemize their expenses on Schedule A, provided they itemize deductions.
When homeowners think about the long-term impact on their finances, the math becomes even trickier. People are looking at vacation homes as longer-term commitments than in the past, with the average buyer planning to own the home nine years compared with five years in 2015, the National Association of Realtors reported.
Owners can still use their vacation home for personal use and rent it to vacationers if they keep records of the usage. Expenses can be deducted, but income is also taxable if you rent out a home for more than 14 days.
Using a second beach home as vacation rental property can be lucrative but it can also be complicated and potential investors should not enter into a contract without expert advice. There are purchase and holding tax strategies as well as tax strategies for selling and tax strategies for converting a rental to full-time personal use. The wrong strategy could prove to be a costly mistake. In addition to being an exceptional real estate expert and fulltime Sales Executive with the Trembley Group Real Estate, Holly Schreiber is a CPA and an excellent person to begin discussions about the tax ramifications and tax minimization strategies of buying a beach home.
When it comes to home sales growth, expect Myrtle Beach and other southern cities will continue to beat the national average in 2018.
The U.S. Census Bureau recently named the Myrtle Beach region as the second fastest growing metropolitan area in the United States. That is not going to change. The region’s warmer weather is particularly appealing even as winter becomes a distant memory, as is the relatively low cost of real estate and low cost of living in general. New jobs are being added to the area as more companies are opening, relocating, or adding branches to take advantage of the Grand Strand’s lower taxes and lower land and labor costs. The stable economic growth and population growth combined with an accommodating attitude toward builders is setting the stage for a boom in Grand Strand building and home-ownership.
As soon as there is more inventory to sell, Myrtle Beach and the Grand Strand will be selling strong.
Lack of Inventory Will Continue to Be a Drag on the Market
A crippling lack of inventory remained the defining feature of the housing market in 2017. At the beginning of 2017 experts believed the market crunch that characterized 2016 would bottom out; instead, it grew worse. According to Zillow, housing inventory declined 10.5% in the 12 months ending in November. Data from brokerage Redfin shows that in November 2017 there were 653,347 homes for sale across the country. In November 2010 there were 967,604. Low inventory is driving all the dynamics, from bidding wars for the hottest properties to incredibly fast home value appreciation.
Looking to 2018, the general consensus is that inventory will pick up slightly. Prices cannot rise faster than wages forever. Life and market events will eventually force reluctant sellers off the sidelines. Home search site Trulia found that 31% of Americans believe 2018 will be a better year than 2017 to sell a home, far more than the 14% who think it will be worse. (Though only 6% of homeowners say they plan to sell.) Another positive signal? New construction has started to swing away from apartments, typically built to rent, to single-family homes, which are built to own.
While the Trembley Group Real Estate Sales Executives expect new construction to begin to catch up with demand in the third and fourth quarter of 2018, until then, low inventory will lead to higher prices and more competition to buy a home.
For the first time in years, 2016 and 2017 saw bidding wars for high-demand properties. A recent Trembley Group Blog post featured Real Estate Sales Executive Sharon Carroll’s experience generating and dealing with multiple offers on her personal home. That sort of strong demand should characterize at least the first half of 2018. It will continue to be a seller’s market.
For a sign of how bad things have gotten, Nela Richardson, chief economist at Redfin, points to the aftermath of hurricanes that wreaked havoc last year. Following those tragedies construction resources went to the places where it was needed most. This was necessary, but it “flat-lined growth” elsewhere, says Richardson. Meanwhile, in the debate about the tax plan lawmakers indicated inventory woes are not top of mind, suggesting no policy relief on the horizon.
In December the Federal Reserve bumped short-term interest rates 25 basis points to between 1.25% and 1.50%. Historically, movement from the Fed has had a corresponding effect on mortgage rates, but three hikes in 2017 and two in 2016 only moved the cost of a home loan slightly higher, casting doubt on just how much of a difference the three hikes Fed policymakers have projected for 2018 will have on housing.
Experts tend to agree mortgage rates will finish the year between 4% and 4.5%. That’s a bit higher than the rates for most of 2017 but still historically low. What they disagree on is how we’ll get there. Ralph McLaughlin, Chief Economist at Trulia, for example, expects a slow and steady rise. Greg McBride, Chief Financial Analyst at Bankrate.com, anticipates volatility with rates “dipping below 4% at least once, spiking above 4.5% and closing the year around 4.5%.” Regardless of how they get there, The Trembley Group Real Estate experts expect a slight rise in mortgage interest rates but that rates will stay at historically low rates, keeping homeownership well within the reach of the Myrtle Beach and Grand Strand home buyer.
Need help? Call The Trembley Group at 843.945.1880 ext. 1 and we’ll help you look for the perfect listing or buyers agent!
At The Trembley Group, we pride ourselves on being the experts at more than just selling real estate. We are local residents, some of us have been here for a lifetime. The rest of us will be here until the end of time. We love living, working, and playing in the diverse backyard of Coastal Carolina, and look forward to helping you live and love your dreams soon too. Please reach out to us by phone or email for personalized service and one-on-one advice.