Before the passage of the tax bill, experts were anticipating more of the same from the housing market in 2018. The limited supply of homes for sale was the biggest issue facing the market last year and it will continue to be a problem, particularly in the entry-level market. Although some are predicting those constraints to ease, the persistent low supply is expected to keep driving prices higher. Mortgage rates were fairly static last year but most experts see them rising in the coming year.
Because the tax bill was passed after the real estate entities put out their 2018 forecasts, their projections below don’t include what impact, if any, several provisions in the bill — such as the caps on the mortgage interest and property tax deductions — will have on the market. Some experts are anticipating prices won’t rise nearly as fast because of the new law. Others say it will help first-time home buyers enter the market.
Here is a roundup of their forecasts and what they expect the major trends to be in the coming year:
National Association of Realtors
NAR predicts home prices will rise about 5.5 percent in 2018. “Low supply is pushing prices higher and making homebuying less affordable in several parts of the country,” said Lawrence Yun, NAR chief economist.
Yun said the biggest impediment to sales is the massive shortage of supply in relation to overall demand. The lagging pace of new-home construction in recent years is further creating a logjam in housing turnover. “The lack of inventory has pushed up home prices by 48 percent from the low point in 2011, while wage growth over the same period has been only 15 percent,” he said.
Yun anticipates mortgage rates will gradually climb with the 30-year fixed-rate average reaching 4.5 percent by the end of 2018.
Javier Vivas, director of economic research at Realtor.com, anticipates a more modest increase in home prices. He predicts a 3.2 percent increase, but most of the slowdown will be felt in the higher-priced segments. Entry-level homes will continue to see price gains because of the large number of buyers and limited number of homes for sale.
Vivas is more optimistic about the inventory shortage. He projects nationally year-over-year inventory will return to positive territory by the fall. The first cities expected to see inventory recover are Boston, Detroit, Kansas City, Nashville and Philadelphia. But the majority of the growth will come in the mid-to-upper-tier prices.
Southern markets such as Tulsa, Little Rock, Dallas and Charlotte will show the most sales growth in the coming year.
Vivas anticipates the 30-year fixed mortgage rate will average 4.6 percent, rising to 5 percent by the end of the year.
Nela Richardson, chief economist at Redfin, says inventory will be the major factor shaping the 2018 housing market. “For the third year in a row, the nationwide inventory shortage is likely to continue to hinder sales and increase prices,” she wrote.
Starter home inventory has not increased meaningfully since 2011.
With few houses on the market, homes will sell faster than ever. Richardson anticipates more than 30 percent of homes on the market selling within two weeks.
Richardson also predicts home buyers will leave high SALT (state and local tax) states. Homeowners will flee California, New York, New Jersey, Maryland, Massachusetts and Illinois “for places where they can get more home for less money,” she wrote.
Meanwhile, wealthier millennials will drive the formation of a new type of suburb, which she dubs “urban suburban.” It’s a place with the walkability and amenities of an urban lifestyle as well as highly rated schools.
And technology will encourage more people to have roommates. The number of households with roommates has increased significantly within the past decade. Apps like Nesterly, which pairs millennials with baby boomers, and CoBuy, which supports group home buying, are fostering nontraditional homebuying and cohabitation.
Richardson expects the 30-year fixed mortgage rate to inch up between 4.3 percent and 4.5 percent in 2018.
Like Richardson, Zillow chief economist Svenja Gudell says inventory will remain a major concern this year. As of September, there were 12 percent fewer homes on the market nationwide than there were a year ago. And those for sale tend to be out of reach for a first-time home buyer. More than half of the homes for sale were priced in the top third of home values.
Many observers blame home builders for not building more to increase the housing stock. The number of new homes built each year remains well below historical norms. But Gudell predicts that builders will at long last turn their focus to entry-level homes this year.
“Builders cannot and will not ignore a hungry market,” she wrote.
Home prices will continue to rise but at a more modest pace. Zillow surveyed 100 economists and housing experts who projected prices to increase 4.1 percent in 2018.
Gudell expects millennials to flock to the suburbs, where they will find more affordable homes, and many homeowners will continue to remodel rather than sell. She predicts boomers and millennials will drive home design.
Mortgage Bankers Association
MBA predicts mortgage rates will become more volatile in the coming year now that the Federal Reserve is winding down its balance sheet.
“As far as rates are concerned, 10-year Treasury yields are forecast to increase in 2018, increasing to 2.7 percent from a 2.3 percent average in 2017, and then climbing to 3.0 percent and 3.4 percent in 2019 and 2020,” wrote MBA economists Lynn Fisher, Mike Fratantoni and Joel Kan. “Mortgage rates will follow a similar path, increasing to 4.5 percent in 2018 from 4.0 percent in 2017. We estimate that mortgage rates will reach the 5.0 percent level by the middle of 2018, but rising only slightly beyond that to average 5.3 percent in 2020.”
Mortgage applications will be fueled by purchases rather than refinances in the coming years.
“Our forecast for 2018 is that we will see continued growth in purchase originations, as we expect around 7 percent growth for the year, followed by 5 percent in each of 2019 and 2020, as purchase originations continue to exceed the [$1 trillion] mark in each of these years,” according to Fisher, Fratantoni and Kan. “Sustained strength in the economy, a tight job market, and a high likelihood of growth in household formation continue to support this forecast. Refinance activity will continue to decrease as rates increase, decreasing 29 percent in 2018 and another 7 percent in 2019.”
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