Photo: Robert Clark
US housing stock has fallen on an annual basis for the last 33 consecutive months, making it one of this year’s primary drivers of the housing market helping to drive home prices up.
The inventory crisis is likely to continue on into 2018, driving up home prices above earlier predictions, according to the results of a new quarterly survey sponsored by the listing site Zillow.
Last year, real estate experts forecast home prices would rise 3 percent in 2018. But experts have since amended their initial forecast, now predicting home prices will rise 4.1 percent — due to persistent annual declines in inventory in 2017.
Building activity has also remained below historic levels, although there was an uptick in construction levels in October to November This has led many respondents to believe that the country’s dwindling supply will remain the primary driver of the housing market next year as well.
“As the recession moved further into the rearview mirror, we were expecting a return to more normal conditions in the housing market, including more home building. We’re still well below historical norms though when it comes to new construction, and more and more people are starting to enter the home buying market,” Zillow senior economist Aaron Terrazas tells BuzzBuzzNews.
Demand is likely to remain high next year, even if 2017’s historically low mortgage rates (currently about 3.9 percent) increase to 4.5 percent as predicted, according to respondents. This is still well below the 6 percent rate recorded just prior to the housing bubble.
With amped up demand and low supply, homebuyers are inevitably going to see home prices escalate.
“Demand will continue to grow and, though supply should increase somewhat, we still won’t build enough new homes to meet this demand, contributing to higher prices,” says Terrazas in the report.
The increase to the average mortgage rate will cut into some buyer’s budgets, which will make it more difficult to find affordable housing.
“Unless there is a fundamental shift in the number and type of homes for sale, this is the new normal of the American housing market,” says Terrazas.
Market conditions in 2018 could prove especially challenging for first-time homebuyers.
“The combination of rapid home value appreciation, slow wage growth, and rising mortgage has made it all the more difficult for first-time homebuyers. At a time when about half of the available inventory is among the most expensive part of the market, competition is particularly fierce for the most affordable homes on the market,” Terrazas tells BuzzBuzzNews.
The quarterly Home Price Expectations survey is sponsored by Zillow and conducted by Pulsenomics LLC. The survey asks over 100 experts about their expectations for the housing market in 2018 and beyond.
Click here to read the entire report.