7 Housing Trends to Watch in 2018

The housing market has sizzled over the past few years as prices have risen dramatically in many markets where supply has remained constrained. Will 2018 bring more of the same?

Well, not exactly. Experts expect the housing market to cool a bit this year but still remain healthy as growing employment and wages buoy the sector.

Here’s what the nation’s housing experts are predicting for the market this year:

1. Millennials Will Embrace Homeownership.

The nation’s largest generation is starting to settle down. As millennials reach their 20s and 30s, they have put buying a home on the radar — a trend that will have a long shelf life.

“This will be the first of many years to come in which it’s all about the millennial first-time homebuyer,” says Mark Fleming, chief economist at First American Financial Corp., speaking with Inman News.

2. It is Still a Seller’s Market.

It will still be a good time to sell a home this year although prices are expected to moderate. CoreLogic predicts home prices will rise 4.2% from November 2017 to November 2018. That compares with a 7% increase from November 2016 to November 2017.

“Rising prices are good news for home sellers, but add to the challenges homebuyers face,” says Frank Nothaft, chief economist at CoreLogic.

3. There Will Be More Homes for Sale.

Eventually. The supply is still super low, and that is a big downer for those who need or want to buy. “For the third year in a row, the nationwide inventory shortage is likely to continue to hinder sales and increase prices,” says Nela Richardson, chief economist at Redfin. But some relief could be on the way, although it may not come until the third or fourth quarter.  “It looks like we could get to a point where we’re seeing growth in inventory sometime in the fall of 2018,” says Danielle Hale, chief economist for Realtor.com.

4. Mortgage Rates Will Rise.

How much depends on who’s doing the forecasting but several key housing experts all agree mortgage rates will go up from where they were in 2017.

The Mortgage Bankers Association says they’ll go up to 4.6% while the National Association of Realtors expects them to clock in at 4.5%, and Freddie Mac says they’ll be 4.4% by September. Realtor.com predicts mortgage rates will rise to 5% by the end of the year. Mortgage rates ended 2017 around 4.25% for a 30-year fixed-rate loan and approximately 3.65% for a 15-year loan. Still, in the grand scheme of things, a 5% mortgage rate is still considered good.

5. Tax Reform Remains a Wild Card.

Most 2018 housing predictions were made before Congress passed tax reform so its impact wasn’t included in housing experts’ forecasts. For homeowners, the biggest changes involve the mortgage interest deduction cap, which falls to $750,000, and the property tax deduction, which drops to $10,000.

In addition, the standard deduction for all taxpayers rises to $12,000 for single filers and $24,000 for joint filers. These higher standard deductions could affect how many households itemize in order to seek the mortgage interest rate deduction. Some may find it no longer makes sense to itemize.

Now that the tax bill has passed, we are essentially in a wait-and-see mode to see how these housing-related tax changes will affect the market. Some experts have predicted fewer sales and prices that fail to grow as robustly as they would have without the changes. To be sure, the biggest impact will be felt in higher-priced markets.

6. Homebuilders Will Be Busy.

Because of the high cost of labor, land and lumber, the prices of new homes may not be in the affordable category for many lower-income to middle-class buyers, and supply constraints in the affordable “starter home” category will continue as builders’ margins get squeezed.

Housing starts in November 2017 were up 12.9% from where they were in November 2016 — their highest point in a decade. Economists expect the construction of single-family houses to continue to rise in 2018, predicting single-family housing starts to rise 7 to 8% in 2018 although multifamily developers will tap the brakes this year.

7. Renting Remains Attractive.

The housing market isn’t only about buying and selling. Many are choosing to rent and to do so long-term. More households are renting now than at any point in 50 years, according to the Pew Research Center. The center notes that the movement toward renting has occurred across all levels of educational attainment.

From 2006 to 2016, rental rates increased among households headed by someone with less than a high school degree, as well as among those headed by a college grad. While millennials will continue to be a huge driver of rental markets, aging baby boomers will also play a significant role. Watch for senior housing will continue to grow as a market segment.

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