“A central theme for the 2018 housing market will be the continuing erosion of housing affordability”, according to Frank Nothaft, Chief Economist of Core Logic. Nothaft is basing his concerns on three economic factors he believes will further weaken affordability in the coming year: rising interest rates, rising home prices and the low inventory of starter homes for sale. Nothaft does not give his opinion on the other side of the affordability equation: household income. If the economy grows jobs and increases wages, this of course would have a positive impact on home affordability. What happens to interest rates, home prices, job creation and wages in 2018 are all speculation at this point and my time traveler friend is not talking. The one thing I do know is the 8% to 9% price growth we’ve seen in the median sales price over the last three Novembers is not sustainable. To put this in perspective we’ll employ the rule of 70. The rule of 70 is a way to estimate the number of years it takes for a certain variable to double by taking the number 70 and dividing it by the appreciation rate. At the 8.5% annual appreciation we’ve seen over the last three years in median price growth in November (70/8.5), prices would double in less than 8 years and three months. Conclusion: Our current market is in balance and our median sales price is in line with our reported median household incomes. Our current appreciation rates will need to fall back in-line with our long-term appreciation rate. Last month STAT projected a median sales price for November of $239,900. The actual median sales price was $245,000. Our algorithm in October was spot on. November… not so good. Our November projection missed the mark by $5,100 (or 2.1% lower than the actual median), by far the worst forecast in modern history. We’ve sent the November algorithm to stand in the corner and think about what it did. We projected that home closings would be comparable to the 2016 total of 6,804. The final sales volume was 7,074. There were 270 more sales this year than last year. Looking ahead to December, we anticipate the median sales price will be $243,000. In other words, expect the December median sales price to see little to no movement. A repeat of last month’s $245,000 would not be out of the realm of possibility. Sales volume for the first 11 months of 2017 was 6.30% higher than 2016, with 86,817 sales in 2017 compared to 81,677 in 2016. Following the pattern of the previous 6 months, we enter December with fewer residential listings practically under contract this year. We begin December with 5,645 pending contracts (3,337 UCB listings and 392 CCBS) giving us a total of 9,374 residential listings practically under contract. This compares to 9,395 of the same type of listings one year ago. Even with fewer “pending” listings this year compared to last and with one less business day this year compared to last, I still expect sales in December to exceed the 2016 volume. ARMLS reported 7,036 sales in December of 2016. Our bold December 2017 forecast of 7,350 sales may be joining the November algorithm in the corner" - 

Read the full report here---