Photo: MK Feeney/Flickr
Some US homebuyers might have an easier time buying a home in 2018, despite mounting concerns about the Republican tax plan.
A much needed inventory bump is likely to better satisfy the demand for housing, and slowing price appreciation could lure more Millennial homebuyers into the market, according to a new report released today by Realtor.com.
Here are 6 key takeaways you need to know about the 2018 housing market forecast:
1. Increased Millennial presence in the market
Millennials have, for the most part, been absent in the housing market in recent years despite the size of the generational group. Saddled with student loan debt, Millennials have found it difficult to save for a downpayment while renting and paying off student loans.
But with the largest cohort of Millennials expected to turn 30 in 2018, their share of the homeownership market could increase due to the sheer size of their generational group. The share of all mortgages taken out by Millennials is expected to rise from an estimated 40 percent in 2017 to as high as 43 percent in 2018.
“Millennials are a driving force in today’s housing market — they already dominate lower price home mortgage and are getting close to overtaking older generations for mid- and upper-tier mortgages,” says Realtor.com in the report.
2. Modest home price appreciation
National home prices rose 5.5 percent annually in 2017, and are forecast to rise 3.2 percent over the next year.
However, homebuyers looking at entry-level homes will still feel the burn of rising prices due to the larger number of homebuyers that can afford starter homes and a more limited inventory of available homes for sale in the entry-level market compared to the high-end luxury submarket.
High-end home prices should reflect the slowing appreciation as there are apt to be more units available and less homebuyers looking to buy at that price point, which would force luxury sellers to be more competitive than those in the entry-level submarket.
And, for homebuyers holding out for the perfect deal, increased prices could add thousands to their downpayment next year.
3. Annual increases in national inventory
Over the last year national inventory levels have continued to fall month-over-month, but in August the rate of monthly inventory decreases began to slow. Based on this trend, by next fall annual inventory growth is expected to increase for the first time since 2015.
Realtor.com predicts the five cities to recover inventory the fastest in 2018 will be Boston, MA, Detroit, MI, Kansas City, MO, Nashville, TN and Philadelphia, PA.
However, the majority of the anticipated inventory growth is expected in the mid to upper price points, which includes homes priced above $350,000.
“Recovery for starter homes is expected to take longer because their levels were significantly depleted by first time buyers,” says Realtor.com.
4. The South leads in sales growth
On the national level, home sales are forecast to rise 2.5 percent annually in 2018, and with many markets in the South expected to grow above the national average. Meantime, new home sales are expected to rise 7 percent year-over-year in 2018.
Sales are expected to grow by 6 percent of higher in Tulsa, OK, Little Rock, AK, Dallas, TX and Charlotte, NC in 2018, and the majority of this growth can be attributed to an increase in building levels to combat the housing shortage.
“With inventory growth just around the corner, these areas are primed for sales gains in years to come,” says Realtor.com.
5. The national homeownership rate stabilizes
The national homeownership fell to an all-time low of 62.9 percent in the second quarter of 2016, and has hovered in the vicinity of that low level ever since, posting only moderate gains.
Currently, the national homeownership rate is 63.9 percent, according to the latest available Census data. And, over the next year, that rate is expected to remain unchanged.
But by the time 2018 comes to an end, the housing market’s environment could be ripe for a bump in the national homeownership rate.
“Next year will set the stage for a significant inflection point in the housing shortage. Inventory increases will be felt in higher priced segments after spring home buying season, which we expect to take hold and begin to provide relief for buyers and drive sales growth in 2019 and beyond,” says Realtor.com.
6. The Great Republican tax overhaul
There remains considerable uncertainty as to how the Republican tax bill will impact the housing market, says Realtor.com. While the House bill has passed and the Senate is moving to a full vote on their version of the bill, the ultimate impact on the housing market will depend on the fine print of the plan that could be adopted.
At this time, both proposed bills include provisions that are likely to decrease ownership tax benefits, while some renters could see tax cuts.
“While more disposable income for buyers is positive for housing, the loss of tax benefits for owners could lead to fewer sales and impact prices negatively over time with the largest impact on markets with higher prices and incomes,” says Realtor.com.