As a realtor, I am often asked to look deep into my crystal ball, through the mist and fog, to give my perception of the visions of the future I see therein. This is usually just cocktail party conversation about the housing market and nothing more. Recently, however, I have felt the need to express my forecast for the future more concretely. The truth is, I do not use a crystal ball, rather I take my gut reactions to the market and compare them to actual trends and data from the past. Mind you, I am not a financial advisor, nor do I have a Ph. D. in micro or macroeconomics, but I do have a fair understanding of key economic indicators and a general feeling for economic progress.

The outlook for 2018 is bright, based on data gathered from the National Association of Realtors, and articles in the Wall Street Journal, Forbes, Fortune, and simple Google Searches on raw statistics. I will break things down using key economic health indicators.

The heartbeat of a country’s economy is Gross Domestic Product. Credible sources place GDP for 2018 between 2% and 3%, with most thinking it will be at about 2.5%. Historically, this is a very healthy number in an ideal range for healthy growth. Unemployment is projected to continue at the natural rate, which is a healthy combination of frictional, structural and surplus unemployment and should stay below four percent, a continued downward trend from 4.7 in 2016 and 4.1 in 2017.

I will caution that many who lost jobs will never have the job they once had (structural unemployment), and will have to face a new and, quite possibly, lower paying career. Not a good sign, but there are indicators that job growth will continue. The largest projected job growth industries will be in healthcare, construction, social assistance and computer systems & design (especially mobile tech).  Additionally, those with expertise in logistics, human resources and environmental and workplace safety are also projected to be increasingly in need.

Economies with rampant inflation or deflation are, by nature, unhealthy. Experts believe that inflation will stay below 2%. This seems to be in keeping with inflation rates for the past few years and rather benign. While some think a housing market crash is in the works, there are many reasons the current market is very different than it was during the crash 10 years ago.

  • Lending standards are much more stringent.
  • Very few sub-prime loans and less bundling and selling of bad debt on the stock market.
  • House flippers are averaging 55% loan to value vs. 80% LTV ratios a decade ago.
  • Inventory is still low, only about four months supply nationally.
  • Homeowners seemed to have learned their lessons and are not taking as much equity out of their homes
  • Some say that housing prices exceeded the peak in 2006, but adjusted for over a decade of inflation, they are still below 2004 numbers. This leads me to believe that there is room for growth.
  • Rental vacancy is still low, so as rents rise to meet demand, the desire for investors to continue to purchase real estate, rather than another type of investment, grows as well.
  • New construction permits are still far below the needs of new housing. This, coupled with devastating fires, floods and hurricanes we had this past year, the country is falling further behind in many areas already in need of additional housing, just to keep up with population demand.
  • The National Association of Realtors (NAR) says that first time homebuyers are still only at 32% as compared to 40% historically. This, with the bulk of a millennial generation (larger than the boomers), coming into their peak in the job market.
  • NAR stats show that most buyers are purchasing homes to live in, not to flip or use as income property.
  • Fixed rate loans are the most common instrument being utilized.
  • The stock market is very strong, and those with money are diversifying their investments between stocks, bonds, real estate and commodities.

The real wild card here is the new federal tax bill, and how it will affect the economy. It is my guess that the changes will benefit business the most, with little effect to the average middle-class worker.  If my prediction is true, however, the benefit to business could lead to continued job growth and that is good for both Wall Street and Main Street.

I was able to chat with community members at a Chamber of Commerce mixer or a holiday party.  Now I have put my predictions in writing, a time capsule of sorts, that we can all open December of 2018, and see if I was right or wrong.  What do you see in the future?  I am looking forward to a very good year.

Eric Hoglund is a licensed real estate broker with Estey Real Estate in Benicia.