2018 is a Wrap – Our 2018 Market Predictions vs. Reality

With some fear and a little trepidation I look back one year to see how our 2018 valley real estate predictions turned out.

Here’s what we said and what happened:
We said: Strong population growth has returned to Arizona and the Valley. According to U.S. Census records Arizona is now the 6th largest state population-wise in the country surpassing 7,000,000. Arizona ranks #7 in population growth and #6 in percentage growth. Why? For all our warts, people want to live here — and this will continue to increase… So, the bottom line question is where will all these people live? The bottom line answer is that they will own and rent homes. More will be needed.
And what happened? The influx continues, perhaps more than we thought, though we’re not surprised. The result continues to be a dearth of homes to buy and rent (low inventory).

We said: The new tax law act is passed. Phoenix Real Estate Wins!
There has been a lot of pre-tax law chatter that real estate would be decimated by the new tax act. I see a win – in Phoenix anyway. Because of our lower to moderate home values, mortgage interest will continue to be deductible for most all Arizona property owners. Yes, the standard deduction increases from $12,000 to $24,000 (for married couples) and this may convince some renters to stay renting rather than ownership with a mortgage, but the upside for home-ownership remains strong. And the $10,000 deduction limitation for state and local taxes? This will have virtually no impact for a state that has some of the lowest taxes in the U.S.

And what happened? Phoenix won, benefitting homeowners and landlords alike which will help in the lack of rental supply.

We said: Residential building will continue strong but will build further out. The Phoenix metro market has done an awesome job of doing urban residential infill projects and this will continue, but the question here is affordability. In our downtown areas, the infill projects will be upscale (read: costly!). We will develop more townhomes and the like. Any new close-in townhouse project under $400K will spike. Builders will continue to build west and southeast as long as buyers buy — and they are.
And what happened? New Home Construction has outpaced 2018. What we didn’t see were whole new communities of single family detached communities rising up to be used for renting only. More are currently being planned and built as well.

We said: State and National Economic growth will fuel rising incomes and further lower the already low Arizona unemployment rate. New industry and relocating companies, especially from California, will increase. Consumer confidence continues to rise. When consumers are optimistic, they spend. With rising incomes, higher price ranges will profit, as in the $500K range to $1,000,000. Luxury housing over $1 Million will need more time.And What happened? Bingo! Arizona incomes have risen, which has assisted the 7%+ rise in home values, near the top of national metro areas. Higher incomes are needed to happen to raise home values. What we didn’t see was that the sales $1,000,000+ market was stronger too.

We said: Mortgage Rates will increase but remain affordable. This will be due to the increased national rise in the economy. Mortgage rates in the mid to upper 4% range will probably be reached after the middle of the year. This is good news because it will remain affordable. Yes, it won’t be in the 3% range, but sub 5% is still good and I doubt that higher rates will deter buyers. Oh, and I will add that this prediction about an increase in rates has been so wrong for so long, that I won’t put down much money on this one.

And What happened? We nailed this one! Rates did increase. But as of today, according to Bankrate.com, 30 year fixed rate conventional loans are between 4.3% and 4.75%.

Next Monday, we’ll prognosticate on 2019.