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Dwindling inventory will likely remain a top challenge in 2018 for the US housing market, driving prices up while spurring heated competition among homebuyers.

And while the concern is that the resulting state of the market is ripe for the formation of price bubbles — especially in many of the country’s hottest markets — experts say the worry is premature. Rising prices and falling inventory are not likely to create price bubbles in 2018, according to new market predictions released today by Nela Richardson, chief economist for the listing site Redfin.

From housing bubbles to Millennials in the suburbs, here are the key takeaways from Richardson’s 7 predictions for the 2018 US housing market you need to know:

1. No housing bubbles

No US housing markets should see bubbles in 2018. Buyers and sellers are in sync when it comes to price, at least for the time being. Homebuyers are even paying more than the listing price in some hot markets, like San Jose, CA. Nationally, the average “sale-to-list” ratio is at 99 percent, the highest on record. This means that on average homes sold for nearly the asking price.

In some of the hottest housing markets, the sale-to-list ratio is above 100 percent, meaning homebuyers paid sellers more than the listing price.

Another reason Richardson says not to worry about housing bubbles is that homeowner debt has declined in 2017 and that bodes well for price growth in 2018. West Coast homeowners have less debt now than a decade ago at the start of the Great Recession.

“The amount of mortgage debt as a percentage of the value of the home is a good signal that price growth will continue next year at about the same rate as 2017,” says Richardson in the report.

2. Roommates help stave off affordability challenges

While falling annual inventory levels are a challenge across all price points, affordable starter homes in particular are in very short supply yet demand remains high. Over the last decade, the share of households that have roommates has gone up from 5.6 percent to 6.6 percent, or about 8.3 million.

And a slew of new apps, like CoBuy and Nesterly, hope to pair up homebuyers to help them overcome affordability challenges through group homebuying.

3. Home selling slowdown due to tax reform bills

While no version of the Republican tax bill has been signed into law as of yet, both the House and Senate versions of the bill include changes to residency requirements for tax deductions. Previously, homeowners had to reside in a home two out of the previous five years to exclude a portion of the sale of the home from capital gains taxes.

However, the new bills bump that residency requirement up to five of the last eight years, which could in turn “incentivize some homeowners to stay in their homes longer.”

4. Growth in urban suburbs

Wealthier Millennials are predicted to be on the move in droves to more “urban suburban” areas — places that offer short commutes into neighboring cities, with high levels of bikeability and walkability, and access to quality schools.

Garden City, NY and East Meadow, NY made the shortlist of 10 “urban suburban” areas to watch in 2018.

5. Homes selling faster

Some 25 percent of homes sold in two weeks or less in 2017 during “peak buying season” while 20 percent sold in a week or less.

With inventory levels remaining low, especially in the lower end of the market, Richardson expects this trend to continue into 2018. In fact, it expects homes to move even quicker next year with pent-up demand heating up.

6. Homebuyers flee high tax states

State and local tax (SALT) income and property tax deductions help keep homeowners in their homes. States like New York, New Jersey, and California could see an exodus of homeowners if SALT deductions were eliminated.

In a recent survey of 900 homebuyers, nearly a third of respondents said they would move to another state if they could no longer deduct SALT income and property taxes.

7. Rising mortgage payments

Over the next year, the 30-year mortgage rate is expected to increase from 4.3 percent to 4.5 percent. At the same time, home prices are expected to rise as much as 6 percent. This means homebuyers will be paying more on their mortgage payments for the same home in 2018.

Monthly payments of principal and interest rose 13 percent in 2017 compared to a year ago, says Richardson in the report. An increase of as high as 20 percent could be possible in 2018.

Click here to read the entire report.

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