Holidays and the Housing Market: December 2018’s Real Estate News Recap

With a blink of an eye, December has come to a close. We’re counting down the 12 days of Christmas into the New Year, but not without another HomeLight’s Real Estate Recap!

Every month, HomeLight scours the internet for the latest real estate stories to create an informative monthly digest so that you’re up to date with the goings-on in housing.

From the stock market to climate change, 2018 has been a year of ups and Dows. Despite the holiday cheer and Michael Buble’s Christmas album, December wasn’t that jolly of a month in terms of housing news for sellers and buyers.

Let’s take a look at what happened this month:

1. Fed Up

+ On December 18, The Federal Fund raised interest rates by a quarter-point to 2.25-2.5 percent. What does this mean for you as homebuyer or seller? Well, higher interest rates mean higher mortgage rates—fewer people are able to afford the hike in interest when buying a home.

+ CNBC, Here’s how that Fed rate hike will impact you: “The economy, the Fed and inflation all have some influence over long-term fixed mortgage rates, which generally are pegged to yields on U.S. Treasury notes, so there’s already been a spike since the Fed started raising rates.

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Source: David Foster/Yahoo Finance

The average 30-year fixed rate is now about 4.83 percent, up from 4.09 percent in 2015. That has cost the average homebuyer roughly $42,000, WalletHub found.

Between increasing home prices and higher mortgage rates, homes are about 10 percent less affordable this year than they were last year, according to Tendayi Kapfidze, the Chief Economist at LendingTree. ‘Next year, we could see another 10 percent to 15 percent decrease in affordability,’ he said.”

If you’re thinking about selling a house, get your listing up sooner rather than later. With mortgage rates still at a historical low, buyers won’t be entirely affected just yet and still have full wallets as we enter the new year. Homebuyers will want to lock down on a rate before its late.

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2. Opportunity knocks for Opportunity Zones

In 2017, Congress established the Opportunity Zones program as part of the Tax Cuts and Jobs Act as an approach to encourage private sector investments in low-income communities in the U.S. In other words, another way for people to avoid capital gains taxes.

“For investors with existing assets that have generated profits — capital gains — reinvesting those gains into these new funds could deliver a sizable tax break. And for the struggling areas — dubbed opportunity zones — the funds could deliver an infusion of investor money that typically would bypass them” (CNBC, Heard the buzz about opportunity zone funds? Here’s the skinny).

Just last week on December 12, President Trump signed an executive order “to create a new White House council for promoting private investment in ‘opportunity zones’ in more than 8,700 distressed communities across the U.S., aiming to expand prosperity to neglected zip codes” (The Washington Times).

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Source: White House

Pretty similar to the 1031 exchange, but with different rules and mission statement.

“Some have called the 1031 exchange ‘a perpetual deferral until the ultimate exit.’ If at any point an investor sells an asset, they are on the hook for the gains. This leaves most investors holding their real estate until death (the ultimate exit) so that at least their heirs get the step-up in basis. With Opportunity Zones, investors don’t have to die to eliminate the capital gains tax burden. After 10 years, the entire basis automatically steps up. And investors don’t have to jump through hoops to get it.

This includes saving taxes on any depreciation of the asset, unlike the 1031, where an investor may have to pay “depreciation recapture.” In essence, an investor can use depreciation to offset income in the rest of the portfolio” (wealthmanagement.com, Opportunity zones explained).

Sounds good, huh? You can read more about it on the IRS’s FAQ page, which highlights how investors can benefit from the proposed tax breaks.

Op Zones are, however, under scrutiny for favoring certain areas with “more potential” than other communities that really need the monetary attention.

Market Watch: ‘Opportunity fund’ managers favor urban areas, commercial real estate: “Ten of the funds focus on the Northeast, and five specifically target New York. Only two funds refer to investment in rural areas…some housing observers worry that they may funnel investment dollars to areas that are already in the process of gentrifying, accelerating that process and leaving behind areas that need the most help.”

3. Fires contained. Now, what?

California fire claims have reached $9 billion and is expected to rise even more. Following the aftermath, California wildfire victims face new challenges finding housing (Market Watch): “For the thousands of Californians who now find themselves homeless, matters may only get worse thanks to the state’s extremely competitive, pricey real-estate market. ‘These market conditions that require would-be home buyers to make quick decisions are not easy for buyers,’ said Danielle Hale, chief economist at Realtor.com.

“Views per property in Butte County, which was the location of the Camp Fire, are nearly double what they were last year. Listings under contract have spiked 86% in Butte County compared to the week before the fire. The number of homes on the market is 23% lower than pre-fire inventory projections.”

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Source: AP Photo/Noah Berger

With thousands picking up the charred pieces from the aftermath, unable to find housing, and facing unaffordable insurance rates, victims are taking their families elsewhere. More than 1 million have already left between 2006 and 2016, due to the housing crisis, and the fires are only making that number go up.

Buzzfeed News: California Already Had A Housing Crisis. The Wildfires Are Making It Worse.

The Mercury News: Deadly Camp Fire fuels California’s raging housing shortage.

4. Like college, but forever: “Co-living” or grown-up dorms?

It’s a known fact that millennials are purchasing homes later in life when compared to their baby boomer parents. Affordability is one explaining factor, but what about other options, like co-living, an alternative to renting and buying a home?

Co-living is “where residents buy into furnished, semi-serviced apartments, either by the unit or by the bedroom. These are sort of communes for digital nomads with pop design, Casper mattresses, Nest thermostats, and other covetable accoutrements of the startup set.

Critics have called them ‘dorms for adults,’ while more evangelical residents praise them for the instant community they create” (Bloomberg, Hotel Icon Ian Schrager Thinks Communal Living Is the Future).

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Source: NREI | WD World Renderings

Hospitality experts believe that this is next step in renting. So much so that investors are pouring their cash into this communal-living experience.

In Europe, Bloomberg, Co-Living Firm Wins $1.1 Billion Investment for Europe Expansion: “Medici Living Group, a Berlin-based provider of communal housing for millennials, won a commitment from Corestate Capital Holding SA to invest 1 billion euros ($1.13 billion) over the next five years to fuel European expansion. The equity and debt investment will go toward the development of 35 co-living properties in countries including Austria, Switzerland, Spain and Poland, according to a statement Wednesday.”

It’s become a global phenomenon (Business Times, All together now: The growing co-living scene in Singapore) and has gained local traction. Medici has plans to expand to states in 2019 with properties already in New York and Chicago.

PR Newswire: Starcity announces major ground-up developments in San Francisco and San Jose, bringing more than 1,000 new coliving units to key urban centers in the Bay Area

5. Climate change is after the housing market, oh and your life

The federal government released a climate assessment following the UN’s climate report, with not so great news.

On the economy, “Without substantial and sustained global mitigation and regional adaptation efforts, climate change is expected to cause growing losses to American infrastructure and property and impede the rate of economic growth over this century.”

And, on infrastructure, “Our Nation’s aging and deteriorating infrastructure is further stressed by increases in heavy precipitation events, coastal flooding, heat, wildfires, and other extreme events, as well as changes to average precipitation and temperature. Without adaptation, climate change will continue to degrade infrastructure performance over the rest of the century, with the potential for cascading impacts that threaten our economy, national security, essential services, and health and well-being” (NCA, Fourth National Climate Assessment).

We’ve witnessed the wrath of climate change all year, from fires to hurricanes. Housing Wire, Natural disasters hasten housing market slow down: “Mortgage Bankers Association Chief Economist Mike Fratantoni cites California’s recent wildfires as cause for concern. ‘The hurricanes in the South and wildfires in the West likely impacted both month’s numbers and continue to cloud the picture of the housing market’s overall strength,’ Fratantoni said.”

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Source: NOAA/STAR

Cities are implementing their own bills to curb pollution, while some people are taking it upon themselves to buy property in less affected areas as preparation for climate change-related disasters and evacuation. NYTimes, Climate Change Insurance: Buy Land Somewhere Else: “A small number of young professionals who are preparing homes away from the places where climate change is expected to strike the hardest.

They have studied maps and research that show the areas of the country that will be less affected by devastation, either because of geography or an ample supply of natural resources. And they are optimistically buying land and homes in these areas, many of them mentioned in an article published in Popular Science in December 2016 titled “These will be the best places to live in America in 2100 A.D.,” which has amassed 28,000 views in the past six months and gets about 100 Google search hits a day.

They believe they are making sound real estate decisions by buying land on high ground that will appreciate in value, while at the same time developing a Plan B.”

6. Where did everyone go?

According to people looking for new places to live, the west coast is the best coast. The US Census Bureau released a report that shows which areas have increased or decreased in population. Idaho and Nevada are the biggest winners. Between July 2017 and July 2018, each state increased more than 2% in population.

+ Realtor.com, The states that grew the most this year: “Texas saw 379,128 new residents over the past year, followed by Florida with an increase of 322,513 new residents. California hit third with 157,696, and Arizona got fourth with 122,720.

Overall, the most populated state is California with more than 39.5 million residents. Texas ranked second, but with 10 million less. On the other hand, the least populated state is Wyoming with 577,737 residents.

The state that lost the most residents over the past year is New York, whose population fell by 47,510 over the past year. Other states that saw population declines in the past year were Illinois, West Virginia, Louisiana, Hawaii, Mississippi, Alaska, Connecticut, and Wyoming.”

See how your state is doing and where people are moving to with this interactive map.

 

7.  Alaskan Earthquake

On November 30, Anchorage, Alaska was hit with a 7.0 earthquake that split highways in half and has caused more than 5,000 aftershock since then. But, within days, Alaskans dusted off their shoulders and repaired their city.

The Verge, How Alaska fixed its earthquake-shattered roads in just days: “‘We have more quakes than any other state in the Union,’ says Shannon McCarthy, a spokesperson with the Alaska Department of Transportation and Public Facilities. As a result, Alaska takes its earthquake preparation very seriously.

The largest earthquake ever recorded in the country shook Anchorage to its core in 1964, causing a deadly tsunami and leaving in its wake damaged buildings, buckled roads, and a legacy that inspired years of earthquake preparation and policies. Strong building codes put in place post-1964 helped make the area more secure than other earthquake-prone areas, like Seattle.

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Source: TIME

NYTimes, The Anchorage Earthquake Was Terrifying. But the Damage Could’ve Been Much Worse: “Experts said that while the quake was significantly less intense than the one in 1964, which was magnitude 9.2, its limited destruction was the result of the region’s growing smarter and much more resilient in the years since. Anchorage was much better prepared for a major earthquake; other cities may not have fared so well.”

As a homeowner or homebuyer, make sure your insurance and protection are updated. Depending on where you live, this might be a call for flood, earthquake, or fire insurance and inspection. In earthquake-prone areas like Alaska and California, double check what your homeowner’s insurance covers to stay protected in case of an emergency.

8. Analysts see 2020 recession with 2020 vision

USA Today, Worst December for stocks since 1931 gets worse as rate hikes spook investors:  “The Dow Jones Industrial Average fell 464 points, or 2 percent, to a 14-month low of 22,860. The technology-packed Nasdaq composite briefly slipped into bear market territory after dipping more than 20 percent from its late August peak.

And the broad Standard & Poor’s 500 stock index, which tumbled 1.6 percent, is now down 10.6 percent from the end of September, which marks its worst start to December since the Great Depression, according to Bespoke Investment Group. The large-company stock index fell 14.53 percent in December 1931, according to data from S&P Dow Jones Indices.”

As we head into 2019 with this stock market, home sellers beware. Fortune, Most Chief Financial Officers Expect a Recession by 2020 at the Latest: “The latest survey of chief financial officers shows that 82% of U.S. CFOs expect a recession to have started by 2020. Almost half (48.6%) of the CFOs thought the downturn would happen by next year, according to the Duke CFO Global Business Outlook poll.”

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Source: Yahoo News | S&P 500 as of Dec 21, 2018

Overall, a crashing stock market and an impending recession lower consumer confidence and affordability of houses, limiting the pool of eligible buyers. Consequently, sellers lower their prices or else they risk sitting on the market for months on end.

Our advice? Sell your home in 2019 before the market drops further. A slowing economy and lower consumer confidence are signals for you to cash out on now.

9. And the color of the year goes to….

Pantone, PANTONE 16-1546 Living Coral: “Vibrant, yet mellow PANTONE 16-1546 Living Coral embraces us with warmth and nourishment to provide comfort and buoyancy in our continually shifting environment.

Sociable and spirited, the engaging nature of PANTONE 16-1546 Living Coral welcomes and encourages lighthearted activity. Symbolizing our innate need for optimism and joyful pursuits, PANTONE 16-1546 Living Coral embodies our desire for playful expression.

pantone
Source: Pantone

Representing the fusion of modern life, PANTONE Living Coral is a nurturing color that appears in our natural surroundings and at the same time, displays a lively presence within social media.”

Living Coral doesn’t have to just be an Instagram aesthetic. If you’re feeling inspired, sprinkle this color around your home for a cozy, yet lively atmosphere.

House Beautiful, Warning: These Coral Rooms Will Make You Want To Redecorate Your Home Immediately

Elle Decor, Pantone just released their color of the year 2019: “Some years, we choose a color and we see it more as an accent, especially in the home space. It’s the kind of color you could paint a whole room. It would be great in an entryway or a bathroom. You could see someone with a great coral couch. It’s a shade people want to live with, which is exactly why we chose it.”

10. ‘Tis the Season

With holiday decorations, most families go for the usual—a tree, basic lights, and maybe a reindeer on the lawn. These families, on the other hand, aren’t here to play. TIME, ‘People Think We’re Crazy.’ Families Who Spend Thousands of Dollars a Year on Christmas Light Displays Explain Their Obsession:

“MONEY spoke with five dedicated light show creators who have decorated their homes for anywhere from five years to four decades, all while adapting to new technology, managing electricity bill costs, dabbling in programming, creating fresh designs, curating the perfect playlist, and balancing a regular job on top of all of it.

They enlist their children to help put up the lights and self-fund the projects on their own. Many have appeared on ABC’s Great Christmas Light Fight, an annual competition between decorators, and have seen an influx of visitors as a result. They swap tips and tricks through forums on a website called Planet Christmas, and the particularly dedicated individuals travel to a Christmas expo each year to learn about the latest upgrades.”

+ Realtor.com, When holiday decor goes too far.

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