2018 Housing Poised for Slow and Steady Gains

2018 Housing Poised for Slow and Steady Gains


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The 2017 real estate market, characterized by a relentless listings shortage, surging home prices and a noisy political climate fueling uncertainty about the future, wasn’t without its challenges. Real estate professionals have weathered years far less rosy. With a strong economy propelling job growth (and putting unemployment at a 17-year low), we find 2018 housing poised for slow and steady gains.  Perhaps a little more balance — say eight leading housing experts who shared their insights with Inman.

2018 Housing Poised for Slow and Steady Gains

Here’s their take on how the housing market and the economy as a whole could unfold in 2018.

How far will mortgage rates rise?

The economists agreed unanimously that, following several years of dormancy, 30-year fixed rate mortgages could finally rise from the current average rate of 3.9 percent — but they were divided on just how much it would increase, with most predicting they would stay well below 5 percent.

Despite muted inflation pressures, overall consumer inflation rose 2.2 percent in 2017,  and Core CPI announced on January 12, 2018, was +1.8% YoY – highest since April 2017 – as shelter costs re-accelerate. Higher inflation is a harbinger that the Federal Reserve may seek to adjust rates several times next year, said Javier Vivas, director of economic research for realtor.com.

Bottom Line: Mortgage rates will remain unusually low compared to historical rates

Inventory will continue to be a thorn for real estate

Up 13.7 percent in October, new housing starts in 2018 could help offset sky-high demand and historically low inventory numbers, which have repeatedly declined over 30-consecutive months to a current total of approximately 1.8 million homes.

“The housing shortage will persist in many markets due to the legacy of slow rate of homebuilding over the past decade,” said Lawrence Yun, chief economist at the National Association of Realtors. “But due to the tax reform, providing less financial benefit to be a homeowner, the overall price increase will be much softer in 2018, by 2-4 percent.”

“We continue stuck in a ‘chicken-and-egg” situation, whereby would-be sellers know that they will likely have no problem selling their existing home, but they will not list until they have found somewhere to buy, and if they can’t find somewhere to buy, they won’t list.

Affordability shaped by wage growth, tax reform, mortgage rates

Homebuyers seeking housing in expensive metropolitan markets like California and New York, in particular, will face significantly higher taxes under the proposed legislation that would restrict residents from deducting state and local taxes on federal returns to a limit of $10,000.

However, provisions in the tax reform just passed could also offset rising property values thanks to changes in the mortgage interest deduction cap to $750,000 from $1.1 million for new loans. Some of that will be offset by the doubling of the standard deduction.

Yun believes that if the economy continues to grow, a widening gap between home values and income levels could close in 2018, thereby creating the perception of affordability for millions of homebuyers — that is, until the mortgage rates begin to climb.

Millennial and first-time buyer trends

In 2018, watch for once considered under-the-radar “urban suburbs,” like West Chester, Pennsylvania; and Arlington, Massachusetts; to emerge as appealing alternatives to big cities for affluent millennials in search of walkable neighborhoods with highly ranked schools, advises Redfin’s Richardson.

A worrying trend is a decline in residential mortgage applications and pipelines. They both tumbled. Specifically in Q3 Wells’ mortgage applications plunged by $10bn from the prior quarter to $73bn, while the mortgage origination pipeline plunged to just $29 billion.” That’s just shy of the post-crisis lows recorded in late 2013. All it, seems, a result of rising rates. Just announced, in Q1 the amount in the all-important Wells Fargo Mortgage Application pipeline plunged by a whopping 23% to just $23 billion, and at the lowest level since the financial crisis.

As for millennials’ baby boomer parents, meanwhile, an anticipated shift to smaller homes, in more affordable communities, hasn’t occurred at the clip many economists had originally forecasted. “Because many are staying in the workforce longer until they retire, they are unlikely to downsize. Additionally, many have a desire to age in place and not move.”

Trendspotting: Changes to Freddie and Fannie could be top priority

Richardson predicts that the next big policy issue to galvanize real estate professionals and Congressional officials will be the proposed reform of Freddie Mac and Fannie Mae, the government-sponsored entities that played a big role in the economic crises of 2008. Treasury Secretary Steve Mnuchin said earlier this year that efforts to overhaul the agencies would begin next year.

The new technology in 2018 will be as critically important to understand, not least of all bitcoin.

“It’s important to stay informed and understand the current issues,” Hepp said. “For example, tax reform is very complex. There will be a lot of misunderstandings about the tax reform. Clients will ask questions. Same with bitcoin. Simply staying informed will help real estate agents and brokers stay relevant in the minds of consumers.”

Expect a trend toward home design that can accommodate multiple generations,

“Newly constructed and newly renovated homes alike are very likely to feature livable, comfortable designs that appeal to both millennials and baby boomers. For example, they might boast wide hallways that can accommodate both strollers (for young families) and wheelchairs (for aging boomers).”

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