December 7th, 2017
Real Estate Predictions for 2018 Housing Market
Below are five housing trends expected for 2018, according to Realtor.com
Five Housing Trends for 2018
Inventory expected to begin to rise – In August, the U.S. housing market began to see a higher than normal month-over-month decline in housing inventory, which has continued to fall. Based on this pattern, Realtor.com® projects U.S. year-over-year inventory growth to pick up by fall 2018, for the first time since 2015. Inventory declines are expected to slow down throughout the new year, reaching a 4 percent year-over-year decline in March before increasing in early fall, after the peak home-buying months. Boston; Detroit; Kansas City, Mo.; Nashville; and Philadelphia are predicted to see inventory statistics to improve first. The majority of this growth is expected in the mid-to-upper tier price points, which includes U.S. homes priced above $350,000. Recovery for starter homes is expected to take longer because their levels were significantly depleted by first time buyers.
Price appreciation expected to slow – Home prices are predicted to slow to 3.2 percent growth year-over-year nationally, from an estimated increase of 5.5 percent in 2017. Most of the decline will be felt in the higher-priced segment as more available inventory in this price range and a smaller pool of buyer’s forces sellers to price more competitively. Entry-level homes will continue to see price increases due to the larger number of home buyers that can afford them and more limited homes available for sale in this price range.
Millennials anticipated to gain market share in all home price segments – Although millennials will continue to face challenges next year with rising interest rates and home prices, they are on track to gain mortgage market share in all price points, due to the impressive size of the generation. Millennials could reach 43 percent of home buyers taking out a mortgage by the end of 2018, up from an estimated 40 percent in 2017. With the largest cohort of millennial expected to turn 30 in 2020, their homeownership market share is only expected to increase.
Millennials are a driving force in today’s society, especially the housing market. They already dominate lower price home mortgage and are getting close to overtaking older generations for mid- and upper-tier mortgages. While financially secure in general, their debt to income ratios have started to increase as they compete for higher priced homes.
Southern markets, like Charlotte, predicted to lead in sales growth – Southern cities are anticipated to beat the national average in home sales growth in 2018 with Tulsa, Okla.; Little Rock, Ark.; Dallas; and Charlotte, N.C. leading the pack. Sales are expected to rise by 6 percent or more in these markets, compared with 2.5 percent nationally. The majority of this growth can be attributed to healthy building levels combating the housing shortage. With inventory growth just around the corner, these areas are primed for sales gains in years to come.
Tax reform will be a major wildcard – At the time of this forecast, both the House and Senate had bills up for consideration, but neither had passed and their impact was not included in the forecast for 2018 sales and prices. Since then, the House has passed its tax bill and the Senate bill is likely to be voted on soon. While the ultimate impact of tax reform will depend on the details of the plan that is finally adopted, both versions include provisions that are likely to decrease incentives for mobility and reduce ownership tax benefits. On the flip side, some taxpayers, including renters, are likely to see tax cuts. While more disposable income for buyers is positive for housing, the loss of tax benefits for owners could lead to fewer sales and impact prices negatively over time with the largest impact on markets with higher prices and incomes. It is hard to tell exactly how this will play out so we will have to wait and see how the final tax reform bill will affect the real estate market.