How the Market Will Change in the 2018 Season

Projections for how the national housing market will shift over the course of 2018 are already starting to come to fruition, and real estate professionals will have to keep a close eye on changing data and market conditions in their regions. This may be especially true when it comes to the start of the spring buying season, which is just weeks away for a number of metro areas.

Perhaps the most pressing concern for would-be homeowners at this time of year is how home prices are likely to rise in the months ahead, according to Nerdwallet. Certainly, prices have been rising – for some time now – at well above the rates considered historically normal in the 3 percent range. And while that’s likely to be the case again over the course of 2018, prices will probably only rise about 4.1 percent, down from at least 6 percent in each of the previous two years.

That will likely be driven by an increase in the available housing inventory in a lot of markets – of all sizes. As a result of market pressures that led to the historically significant increases in home prices, homebuilders are finally responding, with more of a focus on putting up lower-cost homes as a means of opening housing options up to first-time buyers who typically have lower-end housing needs. Starter homes, in particular, have largely been absent from housing inventory, getting scooped up quickly when they do go on the market. If builders can address that concern in the months ahead, it could portend a lot more activity for agents.

That, in turn, is likely to lead to at least a small increase in year-over-year home sales, while new home sales are expected to surge by as much as 7 percent.

What about sellers?
Meanwhile, another reason that prices have increased so sharply in recent years is that many current homeowners just haven’t been putting their houses up for sale in the past several months at least, but that could start to change in 2018 as well, according to U.S. News and World Report. With prices continuing to rise and mortgage rates moderating – but still staying below historical and pre-recession norms – there could be even greater incentive for some owners – particularly older ones – to sell as demand remains high.

While a relatively small number of people currently think they’re going to be in a position to sell their homes in the year ahead, any increase over 2017’s rate of existing homes being put up for sale would likely be a boon to many markets.

And while home prices in and immediately around larger urban areas will likely remain quite high, the growing inventory of both new and existing houses for sale in outlying areas will likely make the dream of homeownership reasonable for both would-be buyers and current owners looking to make lateral moves or trade down on the sizes of their properties.

The effects of the changing economy
The housing market and the broader economy are inextricably intertwined, each having massive effects on each other on a continual basis. One way in which this may be most apparent to would-be buyers and sellers alike is in the form of mortgage rate changes, and the general expectation is that these rates will rise slowly over the course of 2018, according to Inman. Of course, it’s always difficult to project even a few months out where rates will end up landing; many projections at the start of 2017 showed that rates could climb as high as 4.5 percent or more, but in fact, closed the year under 4 percent once again.

Nonetheless, experts once again believe 4.5 percent is a reasonable average benchmark for the market as a whole for 2018, and approaching 5 percent before the year comes to a close. That will likely come over the course of the whole year, as the Federal Reserve Board plans to incrementally raise basis interest rates at a number of points throughout the year. As a consequence, rates should remain well below that mark at the start of the spring buying and selling season, helping to ensure everyone can continue to lock in historically affordable rates that.

Svenja Gudell, chief economist at Zillow, told Inman that even given today’s higher home prices (which at this point are at all-time record peaks in many markets), rates would likely need to crest 6 percent before they started to become unaffordable in comparison to historical norms. Given that projections to this point are largely targeted for the mid-4 percent range, that helps to ensure high-level affordability for some time to come.

Emerging trends
While inventory is likely to be a major issue in many metro regions, there are some where the changing market forces are likely to have a big impact, The Washington Post reported. For instance, cities where inventory has been tight but construction efforts are likely to loosen things up considerably over the course of the year include major population centers like Boston, Philadelphia, and Nashville.

Meanwhile, a number of big Southern markets are probably going to see more robust sales growth as they become attractive destinations for would-be buyers. These include Dallas, Charlotte, and Tulsa, among others.

However, the tax reform bill that recently became law and applies to the 2018 tax year could have an impact on sales as well. For instance, homeowners are no longer allowed to write off certain state and local taxes, meaning that states with high property levies – including California, New York, Massachusetts and so on – could end up seeing a more muted growth as would-be buyers start their shopping elsewhere in an effort to save on their tax bills.

With rates rising and more inventory becoming available, it’s likely the market will continue to shift toward being dominated by purchases, rather than the refinances that have made up at least half of the market for most of the last several years. That trend, too, could affect the number of homes for sale, as owners start to see fewer financial reasons to refinance their existing home loans, and potentially seek ways to find more long-term savings through a home sale.