Photo: Robert Clark
Nearly two months into 2018, some real estate experts are already starting to revise their predictions for the US housing market this year.
Since the end of 2017, the passage of the Tax Cuts and Jobs Act has cast a nefarious shadow on the housing industry. More real estate experts now feel that home value appreciation will slow down as a direct result of the bill, according to the results of a recent survey by the listing site Zillow.
But the new tax law isn’t the only factor to watch as 2018 unfolds. According to the experts, these factors are poised to play a large role in the housing market this year:
1. Shadows of the housing crash
The bubble and subsequent burst may be a decade behind us, but the housing market is still feeling its effects. The crash hit homeowners of the least expensive homes the hardest, with these homes losing more of their value compared to high-priced homes. In subsequent years, demand for these starter homes has risen while supply continues to tighten.
Some owners of starter homes are building wealth faster than other homeowners — which is beneficial for these homeowners, but may have a negative impact on the housing market as they opt to stay in their homes longer. This would keep many starter homes off the market, and keep the upward pressure on home prices in this submarket.
“The typical home seller has lived in the home they’re selling for at least 12 years and 11 percent sell after living in the property between two and five years,” Zillow Senior Economist Aaron Terrazas tells BuzzBuzzNews.
And while the overall housing market has regained the $9 trillion in value it lost during the crisis, home values in some markets remain below pre-crisis peaks while others have exceeded it.
“The gap between the metros with the strongest and weakest housing market recoveries is as wide as it has ever been,” says Terrazas.
2. The rise of rentership
Over the last couple of years, the national US homeownership rate has hovered near the all-time record low set in July 2016, and a rise in the renter population is one reason.
“The sudden surge in the renter population is a response to the decline in the late 2000s. Economic instability generally has a negative impact on homebuying decisions and when the short-term risks of buying outweigh the long-term benefits, it tips the balance toward renting,” Balazs Szekely, real estate writer and data analyst at RentCafe, tells BuzzBuzzNews.
In terms of annual growth, the US ranked fourth worldwide in the change in its rentership population in 2017. With many first-time homebuyers left out in the cold by bidding wars on the dwindling supply starter homes, many would-be buyers are likely to turn to renting in 2018 as well.
“There are several important reasons why prospective buyers haven’t been able to pull the trigger, but the most important one is lack of affordability – not being able to find a home at a price point they can afford,” says the National Association of Home Builders (NAHB) in a report published earlier this month.
3. Immigration and inventory
Unsurprisingly, most US homebuilders say they are concerned about the lack of skilled labor. Some 42 percent of the construction labor force in New York is comprised of immigrants, while nationally, immigrants make up nearly 30 percent of the entire labor force. Travel bans and mass deportations by the Trump administration could certainly take its toll on the housing industry.
“The construction industry is even more dependent on foreign-born workers, as more than a third of the construction industry workforce in these states comes from abroad,” says the National Association of Home Builders.
Fewer construction laborers amounts to fewer new homes being built to meet demand for housing.