From Forbes: Housing Outlook for 2018

Forbes Magazine recently published  their predictions for the housing market in 2018.  The full article, summarized below, can be viewed here:  Forbes.

A rocky start.

At the beginning of the year, predictions are based mainly on the tax revisions passed by Congress and recently signed into law.  Americans will need time to figure out how all of the provisions affect them, making the initial stages of the market hard to predict. Several questions come to mind. Will taxpayers take home more or less from each paycheck?  What will be the impact on the self-employed?  What do the changes mean in terms of property tax deductions and interest deductions for different levels of taxpayers?  Despite the uncertainty, though, underlying demand will still push the market, as will pent up demand from renters

Inventory will continue to lag behind demand.

Data shows that in November 2017 there were 653,347 homes for sale across the country. In November 2010 there were 967,604.  During that same period of time the population of the United States of America grew by almost 6%. So there are 33% fewer homes for sale and 65% more potential buyers.

Most experts agree that this low inventory is the driving force behind price wars and incredibly fast home appreciation.

The general consensus is that inventory will pick up slightly. The biggest reason for this modest optimism is that the current situation is unsustainable. Prices cannot rise faster than wages forever. Plus, life events, mainly an aging population, will eventually force reluctant sellers off the sidelines. In addition, new construction has started to swing away from apartments, typically built to rent, to single-family homes, which are built to own.

It would seem logical that a strong demand for single family homes, coupled with high prices, would entice construction, but this has not been the case in recent years.  The high cost of land, shortages of skilled labor, shortages of building materials, lack of buildable space, and local regulations against density have all contributed to the shortage of new construction. In addition the aftermath of hurricanes and wildfires that wreaked havoc inn 2017 have been impacting construction patterns.  Many construction resources were sent to the places where they were needed most. This was necessary, but it contributed to supply shortages experienced by builders elsewhere.

Home prices will continue to rise, but perhaps at a slower pace.

“Underlying the rising prices for both new and existing homes are low interest rates, low unemployment and continuing economic growth. Some of these favorable factors may shift in 2018,” noted David Blitzer, head of the Index Committee at S&P in the most recent release of the monthly reading.  One thing that seems almost certain is that the Federal Reserve will raise interest rates.

The rent versus buy equation could tilt toward renting in costly markets.

The new tax law has made it incredibly expensive to own homes in some areas of the country. Home prices have been rising faster than salaries and wages.  This could mean that, for some at least, it is cheaper to rent than to own.

Mortgage rates will hover around 4%.

Experts tend to agree mortgage rates will finish the year between 4% and 4.5%. They have been predicting this for several years now, so this may be the year it happens.

Millennial demand for housing will keep climbing.

The generation of adults born after 1980 were slow to enter the housing market, but as a growing share of them get married and have kids, they are buying homes at rates equal to their parents. In fact, single millennials are more likely to own a home than single people of prior generations.

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