Given the almost habitual turmoil surrounding the U.S. housing market, you would be forgiven for thinking that making a prediction is as futile as inventing an underwater hairdryer. The notoriously volatile nature of property means it is difficult to turn soothsayer, but there are a few things that seem obvious when you analyze them. In this article, we look at five crucial market predictions. Keep reading to see if any of them impact your plans.
1 – Property Prices Will Continue to Rise, Modestly
While the average price of homes in the United States rose by an impressive 5.5% in 2017, growth is set to slow to around 3.2% in 2018. CoreLogic believes prices will rise by almost 5%, but at that rate of increase, many regions in America will become overpriced leading to slower sales and decreasing prices in any case. The key to increased real estate transactions will be increased employment, low-interest rates, and affordable listings.
Unfortunately, it appears as if the modest price increase is unlikely to apply to those seeking entry-level homes. This is due to an unfavorable supply and demand ratio. While more people can afford prices at ‘entry level,’ there are nowhere near enough properties to satisfy demand which means prices will naturally increase.
In contrast, properties in the luxury market will experience slower price increases as the supply and demand ratio turns against sellers. There is a stark warning for homebuyers seeking the ‘perfect’ deal; increased prices may add thousands of dollars to your down payment if you wait too long.
2 – There Will Be No Noticeable Rise in Homeownership Figures
In Q2 2016, the national rate of homeownership fell to 62.9%, the lowest rate since Q3 1965 and the joint lowest rate ever. As at Q3 2017, the rate has risen slightly to 63.9%, but it is still way below the all-time high rate of 69.2% recorded in Q4 2004. It seems unlikely that the rate will change much, if at all, during 2018 but it may be ripe for an increase in 2019. According to Realtor.com, we can expect an increase in the rate after spring when the market will experience inventory increases.
Believe it or not, the decline in homeownership could be good news. With recovering real estate values, homeowners today have a similar equity in their property compared to people in 2004. More equity means current homeowners are more secure and stable. It also means that the nation has more homeownership in economic terms. The economy should also be able to withstand another real estate shock a lot better than the last time.
3 – Millennials Will Continue to Be More Active in the Market
The NAR’s recent Home Buyer and Seller Generational Trends Study discovered that millennials were the biggest group of home buyers for the fourth year in a row. They represent 34% of sales but are still underrepresented in many ways. The main issue is the fact that younger buyers are often plagued by student loan debt, so they are unable to save for a down payment at the same time as repaying loans and paying rent.
However, as a generational group, millennials are increasing rapidly which will lead to an increased share in the market. The share of mortgages taken out by millennials could rise to 43% in 2018. Although they dominate the entry-level market, millennials typically want to wait until they can afford a large house. Almost 48% of the group says they want a property with 4+ bedrooms.
4 – National Inventory Will Increase
This should be music to the ears of prospective homebuyers; especially since inventory had fallen almost monthly in the first half of 2017. It was only in August when the reduction began to slow, and analysts believe it is a signal that housing inventory will increase in 2018. By March 2017, inventory had fallen 7% year-on-year, and it was beginning to worry real estate companies.
If an inventory increase does occur in 2018, buyers will probably have to wait until fall for the market to kick into gear; it will be the first time in three years that housing inventory has increased. According to Realtor.com, the fastest growing inventories will occur in Detroit, Boston, Kansas City, Philadelphia, and Nashville.
While it is good news on the surface, the reality is that entry-level buyers will still be left out in the cold. Most of the growth will happen in properties at $350,000+. As the starter home inventory took such a hit in the last few years, it will take longer for the market to recover.
5 – Sales Will Rise in the South
Overall, the forecast is that national home sales will increase by 2.5%, but most markets in the South will exceed this average. According to Kiplinger, new home starts will increase by 5.6% while single-family starts will rise by over 8%. New home sales will rise by approximately 7% in 2018.
Sales in regions such as Little Rock, Arkansas, Tulsa, Oklahoma, and Dallas, Texas, will rise by over 6% as homebuilders do their best to combat the existing housing shortage in these areas. On a national level, higher mortgage rates will ultimately reduce price increases, and metro areas may become seller’s markets. Buyers will begin to realize that they don’t want to commit such a large percentage of their monthly earnings on a mortgage.
The proposed Republican Tax Bill could make a mockery of all of the above predictions so we would advise prospective homebuyers and sellers to wait and see what happens unless they are happy with whatever deal they find on the table. Just bear in mind that the bill’s provisions would reduce ownership tax benefits while renters may receive tax cuts. If owners lose their tax credits, the rate of home sales will probably fall, and prices would also be negatively affected.