What’s the appreciation rate look like for single-family homes in 2018 and how will that affect our market moving forward?
To answer that, let’s start by looking at what happened last year. In 2017, we had a 9.3% appreciation rate in the four-county area (Cuyahoga, Lorain, Summit, and Medina counties). That’s a phenomenal rate, and almost twice as high as the average rate of appreciation.
What was behind this phenomenal appreciation? Supply and demand.
Supply was historically low—we were about 12% below average, and we’re still around that market here in 2018. One of the primary reasons for this is baby boomers are choosing to age in place. In many cases, they’re comfortable with their mortgage payments or their homes are completely paid off, so that represents a big chunk of homes staying off the market.
Another reason is the 30- to 50-year-old homeowner demographic won’t sell their homes either. They lost a lot of home equity during the financial crisis, and they’re making that equity back up now as prices increase, but they haven’t made as much equity back as they’d like and selling generally isn’t an exciting option for them. Most feel like they want to wait until prices rise more until they list their homes. That’s another big chunk of homes staying off the market.
As far as demand goes, interest rates have been driving demand because they’re so low and have been for awhile. Additionally, the unemployment rate is very low and that’s increasing consumer confidence. Young first-time homebuyers are confident and want to step out into the marketplace and enjoy the low interest rates.
That’s what made 2017 so great, but what about 2018?
I think supply will stay low—I don’t see anything on the horizon that will change that very quickly. Demand will also continue to be very good. The big change, though, will be with interest rates. They’re forecasted to rise, and CoreLogic expects a 4.7% rate by December 2018. If that happens, it stands to reason that demand will come down, and with that, prices could soften.
If interest rates do climb up to 4.7%, we could see an average appreciation rate of closer to 6% throughout the year. This still makes 2018 a fantastic year to buy or sell, but our market will be a little bit more normal.
If you have any questions about our market, you’re thinking of buying or selling a home, or you have a real estate topic in mind you’d like to see me discuss in a future video, don’t hesitate to reach out to me by phone or email. I’d be happy to help you.