We all know that the 2017 real estate market in Central Ohio was crazy. While final year-end statistics haven't been posted yet (more on this in my next post), we still know that home prices increased by about 6% last year. Further, there was a severe inventory shortage in Central Ohio, which caused homes to sell about 18% faster than in 2016. In short, it was a great year for those who own real estate. But what does 2018 have in store? Here are my 5 bold predictions for this year's real estate market in Central Ohio.
1) Interest Rates Will Hit 5%
Let's face it - current interest rates aren't sustainable. The U.S. government is essentially loaning money for free (arguably at a loss), but with the national debt now over $20 trillion, this strategy can't continue much longer.
The Fed has been talking about interest rate hikes since 2011, but I think 2018 is the year they finally take real action. Janet Yellen is on her way out, and her replacement, Jerome Powell, is not the biggest proponent of quantitative easing.
But before everyone freaks out, it's good to take a historical perspective on interest rates. While 5% seems astronomical compared to the 3-4% rates we've experienced over the past decade, it's actually pretty low in the grand scheme of things. In fact, the average rate over the past 40 years is around 6%. They even rose as high as 18% in the early 1980s! I'll take 5% over that any day...
All that said, a rise in interest rates will effect home prices. The difference between 4% and 5% on a 30-year fixed rate mortgage is about 12% on your monthly payment. That's about $150 extra per month on a $250,000 home. This small, yet important change, will effect people's purchasing power, and could negatively impact home prices over time.
2) Columbus Will Continue to Boom
Columbus is one of the hottest cities in America. Sure, we're no Denver or Austin, but our population is still on the rise. In fact, we just passed Indianapolis to become the 2nd largest city in the Midwest (lookout Chicago, you're next). Take a drive through downtown Columbus, and you'll be amazed at all the new development.
In 2015, the Columbus Metropolitan area hit the 2 million mark, and some economists anticipate us hitting 3 million by 2040. This seems extreme until we consider nearly 100 people are moving here per day! Granted, the Columbus Metropolitan Area is fairly large and includes some places most Central Ohioans have never heard of (sorry Kirkersville). But the majority of growth is actually in the Columbus suburbs. A recent article by HomeSnacks predicts Hilliard to be the fastest growing city in Ohio this year. Others in the top 10 include Powell, Pickerington, Grove City, Dublin, and Delaware.
3) The Stock Market Will Peak and then Fall
Anyone who knows me knows I've been predicting a stock market crash since 2015. Thus far I've clearly been wrong, so take this prediction with a grain of salt.
That said, the stock market has been on a surge since 2009. The Dow just hit an unprecedented 25,000, and it's been nearly a decade since the last recession. Historically speaking, the average amount of time between recessions is just 57 months, and the longest stretch lasted 10 years (1991 to 2001). Therefore, I think it's unlikely we make it to 2019 without some sort of stock market correction.
Regardless of what happens this year, a recession, however big or small, is imminent. Further, a decline in stock values will likely have a negative impact on the real estate market; but thankfully, this probably won't effect Columbus immediately. It typically takes a few months, even up to a year, for home values to feel the ripple effects of a wider stock market recession. While this may hurt home values in 2019 or 2020, we should be safe in 2018.
4) The Home Inventory Shortage Will End
If you bought (or tried to buy) a home last year, then you know what I mean by inventory shortage. To even have a shot at your dream home, you had to watch Zillow like a hawk, race to the first open house, and make an offer above asking price. There simply weren't enough homes available.
This year, however, will be different. For one, builders and developers have finally had time to catch up to the growing demand. While it only takes 6-9 months to build a new home, it can take builders years to buy land, get zoning approved, and develop the neighborhood infrastructure. Much of this groundwork has already been laid, and new homes are popping up all over town.
Further, builders and developers are now building homes that align with what people really want - less McMansions in the suburbs, and more urban-style condos and townhomes. Not only are these types of properties in high-demand, but they're also much faster to build.
Since the price of construction is fairly high, home buyers shouldn't expect to go bargain hunting anytime soon, but I think the inventory shortage will be coming to an end this year.
5) Home Prices Will Remain Flat
Yep I said it. Despite all these bold predictions, I believe home prices will remain flat in 2018. Relatively speaking, that is, after you consider inflation.
The rise in interest rates and increased development will certainly hurt real estate prices. But Columbus' exponential growth coupled with a booming stock market (TBD how long this continues) should off-set these negative trends.
But despite overall stagnation across Central Ohio as a whole, there are sectors that I think will see a tremendous amount of growth. This includes condos and townhomes, homes under $250,000, and homes located in and around the Short North and German Village. However, I predict these gains will be off-set by losses in homes over $500,000, particularly ones located more than a couple miles outside of I-270.
So there you have it...five bold predictions for 2018. Regardless of how this all shakes out, I'm looking forward to an epic year and am excited to see what happens. Let me know your thoughts in the comments section, and feel free to troll me with disparaging remarks if any of these predictions don't come true. Here's to another wonderful year!