Price Growth is Slowing
We’re currently in a period of record home price growth. For nearly 2 years, home prices have climbed consistently and the first part of 2017 tracked some of the largest gains in over 5 years. Prices will continue to rise as we turn the page into 2018 as a result of low interest rates, low unemployment, and continued economic growth. The good news for those looking to purchase in 2018 is that the rate of that growth will begin to slow.
Sales Will Slow Early in 2018
As price growth slows, sales will follow suit – but not for long. The new tax bill has several provisions that directly impact housing – property tax deductions, mortgage interest changes, and general uncertainty regarding the financial impact of the bill will cause a short slow down in sales. As people are evaluating the effects of the new tax plan on their own personal budgets and the value of their homes, it might cause some hesitation to make any decisions in regards to housing. The slowdown likely won’t last long due to pent up demand and following the recent market growth.
Inventory Will Continue to be a Challenge
Continuing the trend from 2017, a decline in housing inventory will characterize 2018. Based on statistics from Zillow, we experienced a 10.5% decline in housing inventory over 12 months ending in November. The struggle for inventory is a result of several factors. Due to the state of the market, older homeowners are declining to sell their homes and choosing to retire in their existing homes instead. With the growth of the short term rental industry, investors are making too much as landlords to sell. There is some hope for home buyers in 2018, however.
Mortgage rates will hover around 4%.
While this is a bit higher than the rates of the previous year, most experts are predicting that mortgage rates will reach between 4% and 4.5% by the end of 2018. The expectation of rising rates combined with increased home prices means that buyers should act fast.
Increased Equity Gives Homeowners Options
As home values increase, current homeowners have options with what to do with their increased equity. Homeowners looking to remodel or make home improvements, consolidate debt or otherwise cash-out on their home equity can do so more easily than the past few years. According to Freddie Mac, $15 billion was cashed out in the 2nd quarter of 2017 and that trend will likely continue to increase along with home prices.