The steadily improving U.S. economy, sustained job growth and rising confidence that now is a good time to buy a home should pave the way for a strong year in real estate in 2018.
But continued supply shortages threaten to handcuff what should be stronger activity.
There’s also the uncertainty that surrounds the Tax Cuts and Jobs Act.
The ongoing housing shortage storyline has become a constant in the Lehigh Valley, with year-over-year inventory levels steadily declining since 2014.
According to Lawrence Yun, chief economist for the National Association of Realtors which is based in Chicago, the lagging of new home construction in recent years is creating a logjam in housing turnover.
Without enough new homes on the market, homeowners generally are staying put for a longer period of time before selling, typically 10 years, which is keeping inventory low and hurting affordability.
PRICES ON THE RISE
The Lehigh Valley is seeing improved builder confidence and an increase in new construction. As we move through 2018, it is anticipated that more of that new construction to go from the building phase to the selling phase.
Affordability remains a concern, however. In 2017, the median sales price of new construction in the Lehigh Valley was $398,000, according to data from the Greater Lehigh Valley Realtors Multiple Listing Service.
High prices also are being seen outside of new construction. The overall median sales price in 2017 increased 4.5 percent to $185,000.
Single-family home prices were up 5 percent compared to 2016, and townhouse-condo home prices were up 4.7 percent.
Despite inventory and price concerns, the Lehigh Valley real estate market showed gains in 2017 and proved to still be growing at a healthy pace.
Pending sales increased 7.5 percent, landing at 8,573 to close out the year. Closed sales were up 4 percent to finish 2017 at 8,346.
Nationally, Yun expects an increase in existing-home sales in 2018.
It is expected that the Lehigh Valley will follow the national trend for existing-home sales, as both pending sales and closed sales have increased every year since 2014.
Now that the Tax Cuts and Jobs Act has been signed into law, many Greater Lehigh Valley residents are wondering how their taxes, paychecks and home values will be affected.
For the mortgage interest deduction, the final bill reduces the limit on deductible mortgage debt to $750,000 for new loans taken out after Dec. 14, 2017. Existing loans of up to $1 million are grandfathered and not subject to the new $750,000 cap.
As noted, the median sales price in 2017 in the Lehigh Valley was $185,000. Since the impact will only be felt by property owners with mortgages above $750,000, it is not anticipated that the mortgage interest deduction cap will have a significant impact on Lehigh Valley property owners.
Properties (sold or for sale) in the Lehigh Valley with a price above $750,000 make up a very small percentage of the market.
PROPERTY TAX DEDUCTION
The new law also allows an itemized deduction of up to $10,000 for the total of state and local property taxes and income or sales taxes. This $10,000 limit applies for both single and married filers and is not indexed for inflation.
The law also specifically precludes the deduction of 2018 state and local income taxes prepaid in 2017. When House and Senate bills were initially introduced, the deduction for state and local taxes would have been completely eliminated.
Tax incentives for homeowners are imperative, and it is the top priority of the Greater Lehigh Valley Realtors to protect property owners and to promote homeownership. It is optimistic that the tax changes will not negatively affect the housing markets in Carbon, Lehigh or Northampton counties.
BRING ON SPRING
The Lehigh Valley real estate market is resilient and suffers only minor damage during times of uncertainty. The Greater Lehigh Valley Realtors expects 2018 to be another year of positive gains, despite the insecurities caused by tax reform and the inventory shortage.
Low inventory has caused bidding wars and stiff competition. Open houses, even during Mother Nature’s deep freeze, are seeing 30 or more prospective buyers, many of whom missed out on homes and are still looking.
The spring market should be flooded with eager buyers.
For those who have their minds made up to buy a home this year, likely it will be a competitive ride.
The trend has widely been toward fewer days on market and fewer months of supply, indicating strong demand despite higher prices and low inventory.
In a landscape rife with new variables, residential real estate is certainly poised to offer an interesting and active year.
Justin Porembo is the CEO of Greater Lehigh Valley Realtors (www.greaterlehighvalleyrealtors.com), a not-for-profit trade association representing more than 2,500 Realtors in Carbon, Lehigh and Northampton counties. He can be reached at firstname.lastname@example.org.