Bigger paychecks could equal more higher-end homebuyers

Feb. 5, 2018

This piece is presented by The Tony Ratchford Group.

By Tony Ratchford, broker, CRS, SRES, ABR, co-owner Keller Williams Realty Sioux Falls.

This marks my 40th year in residential real estate, a career that has allowed me to live through multiple national economic cycles and to experience their effect on buyers and sellers in the Sioux Falls region. I enjoy analyzing markets and using that information to more effectively guide clients here at home.

I look forward to sharing my insights on the market with you monthly as well. The year already has proven there will be plenty to discuss.

The Commerce Department recently announced the U.S. economy grew 2.6 percent in the last quarter of 2017, with an annual growth rate of 2.3 percent and both the second and third quarters exceeding 3 percent. Consumer spending rose 3.8 percent, and business investment climbed 6.8 percent.

The economy hasn’t grown this fast since 2005.

Expectations for a 4 percent rate during 2018 is common discussion among many economists.

The Tax Reform Act appears to have taken hold. So far, 263 major U.S. companies have committed to new capital spending, $200 million in wage increases and $1.5 billion in additional employee pension contribution. Business growth drives job growth; low unemployment will force companies to compete for employees, which means higher wages, and we probably will see more employment opportunities for individual households as well.

So what does this mean for real estate in the Sioux Empire? It has been my contention over the past four or five years that household income was not only stagnant, but cash flow was down even more because of the extra cost of living and health care. This put most move-up homebuyers on hold. There simply was not additional cash available at the end of the month to afford a higher monthly payment. This stifled the $300,000 to $600,000 market.

Starting in February, paychecks will be bigger because there will be less tax withholding and hopefully increases in wages as well. In addition to the physical financial prospects, consumer confidence is high. On the streets, we are having more conversations with move-up buyers than anytime since the housing crash of 2007.

The result of this most likely will increase home sales, prices will increase, more new homes will be built, and this combination of factors will offer the upper-middle bracket of home sellers an opportunity to sell at a reasonable price and within a respectable time frame. 2018 will be a very good year for both sellers and buyers. 2019 may be even better.

Mortgage rates are trying to push up, but with resistance. The rates are 4 percent to 4.25 percent for a 30-year loan. These rates ought to hold tight for a few more months; however, they most likely will be higher at the end of the year. There is still plenty of time for buyers to take advantage of historic buying power.

History is laced with factual data. Real estate investment in every category is looking as promising as anytime experienced over the past 40 years.

Wishing you a spectacular 2018!

We invite you to call or text 605-359-4100 to reach us for your real estate needs.

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Bigger paychecks could equal more higher-end homebuyers

Higher wages and improved consumer confidence point to a promising move-up housing market this year, according to Tony Ratchford.

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