Geopolitical uncertainty is causing mortgage rates to drop. Windermere Chief Economist, Matthew Gardner, explains why this is and what you can expect to see mortgage rates do in the coming year.
Over the past few months we’ve seen a fairly significant drop in mortgage rates that has been essentially driven by geopolitical uncertainty – mainly caused by the trade war with China and ongoing discussions over tariffs with Mexico.
Now, mortgage rates are based on yields on 10-Year treasuries, and the interest rate on bonds tends to drop during times of economic uncertainty. When this occurs, mortgage rates also drop.
My current forecast model predicts that average 30-year mortgage rates will end 2019 at around 4.4%, and by the end of 2020 I expect to see the average 30-year rate just modestly higher at 4.6%.
The last time we saw a balanced market was late 1990s, meaning many sellers and buyers have never seen a normal housing market. Windermere Real Estate’s Chief Economist Matthew Gardner looks at more longer-term averages, what does he see for the future of the housing market?
What a year it has been for both the U.S. economy and the national housing market. After several years of above-average economic and home price growth, 2018 marked the start of a slowdown in the residential real estate market. As the year comes to a close, it’s time for me to dust off my crystal ball to see what we can expect in 2019.
The U.S. Economy
Despite the turbulence that the ongoing trade wars with China are causing, I still expect the U.S. economy to have one more year of relatively solid growth before we likely enter a recession in 2020. Yes, it’s the dreaded “R” word, but before you panic, there are some things to bear in mind.
Firstly, any cyclical downturn will not be driven by housing. Although it is almost impossible to predict exactly what will be the “straw that breaks the camel’s back”, I believe it will likely be caused by one of the following three things: an ongoing trade war, the Federal Reserve raising interest rates too quickly, or excessive corporate debt levels. That said, we still have another year of solid growth ahead of us, so I think it’s more important to focus on 2019 for now.
The U.S. Housing Market
Existing Home Sales
This paper is being written well before the year-end numbers come out, but I expect 2018 home sales will be about 3.5% lower than the prior year. Sales started to slow last spring as we breached affordability limits and more homes came on the market. In 2019, I anticipate that home sales will rebound modestly and rise by 1.9% to a little over 5.4 million units.
Existing Home Prices
We will likely end 2018 with a median home price of about $260,000 – up 5.4% from 2017. In 2019 I expect prices to continue rising, but at a slower rate as we move toward a more balanced housing market. I’m forecasting the median home price to increase by 4.4% as rising mortgage rates continue to act as a headwind to home price growth.
New Home Sales
In a somewhat similar manner to existing home sales, new home sales started to slow in the spring of 2018, but the overall trend has been positive since 2011. I expect that to continue in 2019 with sales increasing by 6.9% to 695,000 units – the highest level seen since 2007.
That being said, the level of new construction remains well below the long-term average. Builders continue to struggle with land, labor, and material costs, and this is an issue that is not likely to be solved in 2019. Furthermore, these constraints are forcing developers to primarily build higher-priced homes, which does little to meet the substantial demand by first-time buyers.
In last year’s forecast, I suggested that 5% interest rates would be a 2019 story, not a 2018 story. This prediction has proven accurate with the average 30-year conforming rates measured at 4.87% in November, and highly unlikely to breach the 5% barrier before the end of the year.
In 2019, I expect interest rates to continue trending higher, but we may see periods of modest contraction or levelling. We will likely end the year with the 30-year fixed rate at around 5.7%, which means that 6% interest rates are more apt to be a 2020 story.
I also believe that non-conforming (or jumbo) rates will remain remarkably competitive. Banks appear to be comfortable with the risk and ultimately, the return, that this product offers, so expect jumbo loan yields to track conforming loans quite closely.
There are still voices out there that seem to suggest the housing market is headed for calamity and that another housing bubble is forming, or in some cases, is already deflating. In all the data that I review, I just don’t see this happening. Credit quality for new mortgage holders remains very high and the median down payment (as a percentage of home price) is at its highest level since 2004.
That is not to say that there aren’t several markets around the country that are overpriced, but just because a market is overvalued, does not mean that a bubble is in place. It simply means that forward price growth in these markets will be lower to allow income levels to rise sufficiently.
Finally, if there is a big story for 2019, I believe it will be the ongoing resurgence of first-time buyers. While these buyers face challenges regarding student debt and the ability to save for a down payment, they are definitely on the comeback and likely to purchase more homes next year than any other buyer demographic.
Originally published on Inman News.
Constructing or remodeling a home is a complex, expensive endeavor. Ideally, everything goes as planned, and when the dust clears, the homeowner can settle in and enjoy the new home — and never think about the building process again.
But what happens when, nine months after the owner moves in, the floor develops a crack, the dishwasher begins to leak or the shower water won’t run hot? Or when these things happen three years later? It’s time to refer to an all-important piece of the contract: the warranty.
What Is a Warranty?
The purpose of a warranty is to protect both the homeowner and the builder — homeowners from shoddy work with no recourse; builders from being liable for projects for the rest of their lives.
A warranty may be included in a contract, or it may not be since it’s not required. There is no standard length of time for one. Rather, a warranty is a negotiable portion of the overall agreement (contract) between a homeowner and a contractor.
The laws that relate to warranties are somewhat vague and vary by state, so the advantage of having one as part of the contract is that everything can be clearly spelled out. However, by agreeing to a particular warranty without understanding its finer points, owners may inadvertently limit the protections they would have otherwise had under the law.
“A warranty describes the problems and remedies for which the builder will be responsible after completion of the project, as well as the duration of the warranty and the mechanism for addressing disputes,” says David Jaffe, vice president of legal advocacy at the National Association of Home Builders.
At least in the ideal case.
The Law Governing Warranties
Before homeowners agree to a particular warranty as part of their contract, it’s important to understand what protections they already have under the law. In the U.S., we have a legal concept of an implied warranty — which is a warranty that does not have to be spelled out in the contract but is simply understood to exist thanks to the law. There are two important implied warranties when it comes to home construction.
The first is the implied warranty of good workmanship, which is the reasonable expectation that a home will be built in a workmanlike manner. The second is the implied warranty of habitability, which is the reasonable expectation that the home will be safe to inhabit.
The implied warranties, however, have limits in the form of statutes of limitation and statutes of repose, which essentially are time clocks that determine for how long a homeowner may sue a contractor.
Statutes of limitation in each state dictate how long an owner can invoke various types of legal claims — for example, a breach of contract claim.
Statutes of repose apply specifically to construction projects and set the time for which builders and designers are liable for their product. These also vary by state. In California, the statute of repose is four years for most defects, but 10 years for latent defects (those that aren’t observable right away, such as a faulty foundation). In Georgia, the statute of repose is eight years for all claims related to the design or construction of the building.
Finally, most states also have a right to repair law, which means that before homeowners can sue a contractor, they need to notify the contractor of the problem and give him or her a chance to come to see it and repair it.
To find out what the laws are in your state, simply do an online search for “statute of repose” and “right to repair” in your state.
The One-Year Warranty
The key thing to understand about warranties is that many builders offer their own warranty in lieu of the implied warranty. Additionally, many contracts specify that homeowners are giving up their rights to the implied warranty by agreeing to the builder’s express warranty. Also, builders will “often try to shorten statutes of limitation and statutes of repose. Some states allow you to do that. Others don’t,” says Anthony Lehman, an Atlanta attorney who advises homeowners.
Though there is no industry-wide standard, many residential contractors have adopted a one-year warranty for their contracts. The practice likely trickled down from commercial construction, where a callback warranty is typical. A callback warranty means that within one year, a building owner has the right to call back the contractor and expect him or her to repair work, Lehman says.
The downside for homeowners who agree to a one-year warranty is that they likely trade away their right to the implied warranty, and they may also agree to limit the time they have to discover a defect and sue. Obviously, this is a plus for builders because it limits their risk.
But there is no real reason a homeowner has to accept a one-year warranty simply because that’s the builder’s first offer. “It’s a negotiated point, and people can negotiate warranties that are broader — and they often do,” says Robert C. Procter, outside general counsel for the Wisconsin Builders Association. “If you don’t ask for more, you won’t get more.”
Pros and Cons of a Builder’s Warranty
Though a one-year warranty may seem like a poor deal for a homeowner, a contract with details spelled out does provide an upside: some degree of clarity in the process. Ideally, a warranty includes not only the time period that the warranty covers, but also the standards by which various materials will be evaluated, and the steps to follow when a problem arises.
In a minority of states, the legislature has codified what a warranty is and how long it lasts for a variety of materials, Jaffe says. They are California, Connecticut, Indiana, Louisiana, Maine, Maryland, Minnesota, Mississippi, New Jersey, New York, Pennsylvania, Texas, and Virginia. If you live in one of these states, you can refer to the state-set standards.
If you do not, one option is to refer to the NAHB’s publication Residential Construction Performance Guidelines. “It’s broken down by categories within the home: foundations, exterior, interior, roofing, plumbing,” Jaffe says. “If there’s an issue that comes up, you look in this publication, and it tells you what the observation is — what’s the problem.” The guide then spells out what the corrective measure — if any — should be.
If you decide to use this guide as the standards by which problems will be judged, be sure you read it first and are comfortable with its terms. Sometimes having the terms spelled out is simpler than relying on the implied warranty because the implied warranty is so vague.
“The implied warranty doesn’t have a fixed time; it’s a reasonable period of time,” says Jaffe, of the NAHB. “If you’re a homeowner, and you call your builder up in year five and say, ‘There’s a crack here, and I think you should come out and fix it because it’s a defect,’ well, at that point, it may or may not be related to something that the builder did or didn’t do. Is it a defect? Who is going to make that determination? What is the fix? Who is responsible for it?”
Relying on the implied warranty means that these sorts of questions would need to be resolved in court if the parties aren’t willing to, or can’t, come to an agreement on their own. Open for debate is whether an item is a warranty item, and for how long it’s covered. Having these issues determined in court can be an expensive, time-consuming headache for everyone involved.
Still, some attorneys say owners might be better off with the implied warranty than giving up their rights for a limited one provided by the builder. “You build a house, and you expect it to be there for a long time. The buildings in Europe have been there a long time. The pyramids have been there a long time. The question is how long is it reasonable for you to expect it to last,” says Susan Linden McGreevy, an attorney in Kansas City, Kansas, who specializes in commercial real estate work. “If it has to get before a jury, the contractor has lost already. What I mean is, the jury will always find in favor of a homeowner — unless they’re a real flake.”
Going Beyond Warranties
Despite all this talk of legalities, there is an important caveat: Many good builders will continue to be helpful even after their express warranty has passed. Anne Higuera, co-owner of Ventana Construction in Seattle, provides a one-year warranty to her clients. Nonetheless, Ventana has made repairs and fixes even years after the one-year warranty expired. Higuera says the company does so because the builders want good relationships with their customers, and because they feel as though it’s the right thing to do. “Warranty issues come up very rarely if you do things well in the first place,” Higuera says. “Just finding a contractor who does the right thing on the front end helps you avoid issues with warranty.”
More Ways to Protect Yourself
So what should homeowners do if a builder is offering only a one-year warranty? One option is to negotiate for a longer period of time. “You might want to say, ‘I’ll take a one-year warranty for everything except latent defects,’” McGreevey says. (Reminder: Those are the kind that take a long time to discover, such as foundation problems.)
Another option owners have is to ask builders about insurance products. Many builders offer products with an extended warranty — as long as 10 years — that is backed by insurance companies. These are typically paid for by the builder, with the cost passed on to the homeowner.
Third, homeowners would be wise to consult an attorney to make sure that they’re not giving up rights unknowingly. Given that owners are spending thousands to hundreds of thousands of dollars on construction, paying for five to 10 hours of an attorney’s time (at $300 per hour, $1,500 to $3,000) to ensure that the contract is sound is probably a good investment. “Would you buy a car for $50,000 and not read any of the financing information?” says Lehman, the Atlanta attorney. “And then people do that for a home construction project.”
Finally, the most important thing is for both contractors and owners to screen each other carefully. “Ninety-eight percent of the homeowner-builder relationships, when there’s a disagreement, most parties reach a reasonable conclusion, even if they’re not 100 percent happy,” says Procter, the Wisconsin attorney. “The contracts matter more when someone is not being reasonable.”
By Erin Carlyle, Houzz.com
While many people look forward to the arrival of a jolly red-suited visitor one night this winter, for all of us the holidays are a gift and a danger. All of us want to stay safe from burglary, and there’s nothing paranoid about taking a bit of extra time to stay safe. The holidays are a time for relaxation, peace of mind, and sharing love and affection. From old-school security tricks to new digital home monitoring tools, there are many options when it comes to keeping our homes safe and preserving that sensibility.
Security bars and gates:
Sometimes the simplest security is just deterring people from trying to get in. While security bars across windows are a great way to keep intruders out of your home, they can be a real eyesore. Luckily, there are now options for decorative security bars that simultaneously protect your home while enhancing its beauty.
Upgrade your locks:
A poorly installed deadbolt can make it easy for an intruder to kick in your door. Start by making sure that your door frames are in good condition and then look into getting a higher quality deadbolt. You’ll find everything from classic models with keys, or digital options that require passcodes or a fingerprint.
It’s also a good idea to check all the locks on your windows. Some older models are easy to jimmy open with a little wiggling. For ground floor windows, you may want to consider double locks. It goes without saying, leaving windows open during the summer is a bad idea – especially those that can be easily accessed.
Exterior and interior home lighting:
Having your exterior lights on timers or motion sensors is a good way to deter nighttime snoopers. Add sensor lights to key entry points on your home, including the front door, back door, and/or basement entries. If you have an unused side yard, consider lighting there too. Keeping your home lit makes unwanted visitors weary of being seen.
If you will be gone from your home for an extended period of time, consider using timed lighting options in your home to make it appear someone is around. You can select timers for bedrooms or living areas. Also, you can program a radio to turn on and off for sound.
If you are considering an alarm, you have an array of options that vary from self-install motion detection kits to full-service home security systems. If you choose to do-it-yourself, you will want to install motion detectors on doors and windows – especially those that can be easily accessed on the ground floor. In most cases, these kits also offer a 24-hour call service for an extra fee.
Full-service security systems can include everything from an alarm system and panic buttons to and integration with your smoke detectors/ fire prevention system. These services are expensive up front but usually have a reasonable monthly rate. And keep in mind, having a home security system installed can also reduce your insurance rates.
If installing an alarm system is cost-prohibitive or does not fit your lifestyle, consider purchasing stickers and a sign that state that your home is monitored by a trusted security system, and place them so they are visible at every entrance.
Security cameras are readily available for home installation. You can install these in prominently viewed places to deter burglars. There are do-it-yourself install options and professional systems that come along with monitoring services. There are even options that will work with your smartphone. If the cost of security cameras is too steep for your budget, you can purchase fake cameras to act as a visible deterrent for intruders.
Build your community:
Programs like Neighborhood Watch are very successful in some communities, by creating an environment where everyone is looking out for each other. Building close-knit relationships with your neighbors can go a long way in making you feel safe at home. Whether this is through a formalized program, or a shared agreement with your community, developing relationships with your neighbors is a great way to keep your home safe.
The following analysis of the Metro Denver & Northern Colorado real estate market (which now includes Clear Creek, Gilpin, and Park Counties) is provided by Windermere Real Estate Chief Economist Matthew Gardner. We hope that this information may assist you with making better-informed real estate decisions. For further information about the housing market in your area, please don’t hesitate to contact your Windermere agent.
The Colorado economy continues to perform quite well, having added 72,200 non-agricultural jobs over the past 12 months — a solid growth rate of 2.7%. Through the first eight months of 2018, the state has added an average of 6,700 new jobs per month. There has been a modest slowdown in employment gains, but I really don’t think this is a cause for concern and still hold to my forecast that Colorado will add a total of 82,000 new jobs by the end of 2018.
In August, the state unemployment rate was 2.9%. This matches the level seen a year ago. Unemployment rates in all the markets contained in this report rose between August 2017 and August 2018 but this is not actually a concern. Growth in the workforce is not only due to recent college graduates, but also discouraged workers who are starting to look for work again and this puts upward pressure on the unemployment rate. All of Colorado’s metropolitan areas are showing unemployment rates at around 4% or lower, suggesting that the regional economies are at, or close to, full employment.
HOME SALES ACTIVITY
- In the third quarter of 2018, 16,550 homes sold — a drop of 6.2% compared to the third quarter of 2017.
- Sales rose in just two of the 11 counties contained in this report. Gilpin County again led the way, with sales rising by an impressive 21.1% compared to third quarter of last year. There was also a significant increase in Clear Creek County. Sales fell the most in Arapahoe County.
- Slowing sales in the quarter can, to a degree, be attributed to continued home price growth, but I believe it is more a function of the rapid rise in the number of homes for sale. The number of listings in third quarter rose by 5.4% over the same period in 2017, but was up by 31.2% compared to the second quarter of this year.
- What the numbers are telling us is that inventory growth is giving buyers more choice and they are being far more selective — and patient — before making an offer on a home.
- Even with the rapid rise in listings and slowing home sales, prices continue to trend higher. The average home price in the region rose 7.9% year-over-year to $460,982. However, the average price dropped 4% between second and third quarters.
- The smallest price gains in the region were in Park County, where prices rose by a fairly modest 3.6%.
- Appreciation was strongest in Clear Creek County, where prices rose 10%. All other counties in this report saw gains relative to the third quarter of 2017.
- Affordability is becoming an issue in many Colorado markets and this, in concert with rising inventory levels, has started to dampen home price growth. Although I do not expect prices to drop, I do think price gains will moderate over the next few quarters.
DAYS ON MARKET
- The average number of days it took to sell a home in Colorado remained at the same level as a year ago.
- The amount of time it took to sell a home dropped in three counties: Gilpin, Clear Creek, and Larimer. The rest of the counties in this report saw days on market rise by only a couple of days or less.
- In the third quarter of 2018, it took an average of 24 days to sell a home. It took less than a month to sell a home in all but one county.
- Housing demand is still solid and, as long as homes are priced appropriately, they will continue to sell in less time than historic averages.
This speedometer reflects the state of the region’s real estate market using housing inventory, price gains, home sales, interest rates, and larger economic factors.
For the third quarter of 2018, I continue the trend that I started last quarter and have moved the needle a little more in favor of buyers. Listings are likely to continue their rising trend, but we should still see a seasonal drop off during the winter months. The market is clearly headed toward balance, which I am very pleased to see.
Matthew Gardner is the Chief Economist for Windermere Real Estate, specializing in residential market analysis, commercial/industrial market analysis, financial analysis, and land use and regional economics. He is the former Principal of Gardner Economics, and has more than 30 years of professional experience both in the U.S. and U.K.
The US housing market has been going gangbusters in recent years. Record-setting sales, record-setting home prices, and a market that has largely favored sellers, while forcing fierce competition among buyers. All of this has led some to worry that we are heading towards another housing bubble. So, are we? On Tuesday, September 25, at 11 AM PST, Windermere Real Estate is hosting a Facebook Live event where our Chief Economist, Matthew Gardner, will discuss this and the latest Case-Shiller housing report. Whether you’re a buyer, seller, homeowner, or just a real estate junky, tune in to see what Matthew has to say; he’ll also be taking questions from the audience. This is the first in a series of Facebook Live events with Matthew, which will take place on the last Tuesday of each month.
You can learn more and offer suggestions for future discussions by following the link to the event here
Check out the latest Gardner Report below with information and stats on the Northern Colorado Real Estate Market!
You can download the 4-page PDF here: Gardner Report PDF Download
Annual employment growth in Colorado was measured at a respectable 2.2% in November and will likely finish the year having created around 55,000 new jobs. Within the metropolitan market areas included in this report, we are seeing employment growth at or above the state level and I anticipate that this will continue to be the case in 2017.
Unemployment rates continue to drop, and with rates now below three percent, all of Colorado’s metro areas are at full employment. Because of this robust level of growth—in concert with very low unemployment levels—I anticipate that we will see some fairly substantial income growth as companies look to recruit new talent and keep existing employees happy.
HOME SALE ACTIVITY
- There were 14,614 home sales during the fourth quarter of 2016—up by a marginal 0.7% from the same period in 2015.
- Jefferson County saw sales grow at the fastest rate over the past 12 months, with a 5.9% increase. Sales activity fell in three counties, but this was a function of short supply rather than slowing demand.
- Listing activity continues to remain well below historic averages, with the total number of homes for sale in the fourth quarter 12.8% below that seen a year ago.
- The key takeaway from this data is that 2017 is shaping up to be one which will still substantially favor home sellers. I do anticipate that we will see some improvement in listing activity, but it is almost a certainty that demand will exceed supply for another year.
- Demand continued to exceed supply in the final three months of 2016 and this caused home prices to continue to rise. In the fourth quarter, average prices rose by 9% when compared to the fourth quarter of 2015. The average sales price across the region is now $393,969.
- In many parts of the region, prices are well above historic highs and continue to trend upward. With double-digit price increases over the past year, the market remains very hot.
- Annual price growth was strongest in Larimer and Jefferson Counties, where prices rose by 11.8% and 10.9% respectively.
- While we will likely see some modest softening in home price growth in 2017, we can still expect a very strong market.
DAYS ON MARKET
- The average number of days it took to sell a home dropped by one day when compared to the fourth quarter of 2015.
- Homes in a majority of the counties took less than a month to sell.
- In the final quarter of the year, it took an average of just 27 days to sell a home. This is down from the 28 days it took in the fourth quarter of 2015.
- The Northern Colorado housing market is still firing on all cylinders. The only missing piece is listings, which remain well below the historic average.
This speedometer reflects the state of the region’s housing market using housing inventory, price gains, sales velocities, interest rates, and larger economic factors.
For the fourth quarter of 2016, the needle remains firmly in the seller’s territory. It will be interesting to see if the recent increase in mortgage rates has any effect at all on the housing market. I believe that it will; however, I expect that it will likely cause a slowdown in home price growth rather than any collapse in home prices.
Matthew Gardner is the Chief Economist for Windermere Real Estate, specializing in residential market analysis, commercial/industrial market analysis, financial analysis, and land use and regional economics. He is the former Principal of Gardner Economics, and has over 25 years of professional experience both in the U.S. and U.K.