An update on the 2017 real estate market

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An update on the 2017 real estate market


We would like to thank Kurt Eakin, President of Coastal Life Wealth Management, who provided the research and commentary below.

It appears that we are still relatively affordable compared to the housing market bubble that ended in 1st quarter 2006. The National Association of Realtors Affordability index, which takes into consideration current median incomes, inflation, interest rates, average purchase prices, inventory etc. show that our current market allows for 45% of San Diegans to afford to purchase an average home. Compare that number to the peak of the housing bubble in 2nd quarter 2006, that index number was 21%.

The S&P/Case-Shiller National Home Price Index for October 2016 showed that prices gained 5.6% year-over-year. In fact, the index is indicating that housing prices are now establishing new all-time highs. The October growth rate was a bit higher than the average rate over the past year, as consumer confidence improved. We expect 2017 price hikes in the 4.5%-5.5% range. To make this forecast, we monitor leading indicators that include inventory levels, which are relatively low at a 4.0-month supply of existing homes for sale, according to the National Association of Realtors.

We also track new home sales, which are running at a 592,000 per year rate, below our threshold of 700,000 (at which point there is the risk of a bubble). There are risks to our bullish outlook. Affordability could be a problem if employment trends stall, and borrowing costs may rise due to the Fed’s rate-hike campaign. These factors will likely prevent house prices from soaring at a double-digit rate any time soon. But we note that white-hot conditions aren’t always conducive to sustainable long-term growth in housing, which is a long-time foundation for U.S. GDP growth.

Kurt Eakin, CFP®, AIF® P 858-496-7782   Coastal Life Wealth Management


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