New Year, New Predictions in R.E.
As the new year begins, it’s always helpful to keep an eye on trends for our biggest asset—our property. Here are some of the real estate trends predicted for 2018, according to Nerdwallet.
The housing picture is likely to improve in 2018:
- Home prices are expected to climb, but not as fast
- More houses could be for sale toward the end of the year, giving home buyers a greater selection to choose from
- Homeowners will have more equity to borrow from
Whether you currently own a home or are looking to buy or sell, here are some in-depth analyses of some of the biggest predicted trends.
Home prices decelerate
Good news for first-time home buyers: Home-price appreciation is expected to cool down in 2018 after sizzling the past couple of years.
Home prices rose 6.3% in 2016, according to the Federal Housing Finance Agency. And they’re on track to exceed 6% in 2017, too. But for 2018, the median forecast among six industry and lender groups is for home prices to plateau to a 4.1% increase in existing home prices nationwide.
Wondering why the slowdown? One factor is home construction. Economists expect the construction of single-family houses to rise sharply in 2018, based on building permit applications.
More homes for sale
Many home buyers are struggling to find houses for sale—especially in the Charlotte area, where properties are often snatched up in a few days. Shortages are especially sharp for the kinds of homes that first-time buyers tend to purchase. Among the reasons for the tight supply:
- Many home owners are content to age in their homes instead of downsizing
- Investors bought homes after the housing bubble burst, and the income property business is booming, making owners reluctant to sell
- The cost of infill lots close to Uptown Charlotte have skyrocketed. Builders have to build a more expensive home than an entry level home in order to justify the land cost.
- Entry level homes are being targeted not only by first time home buyers, but also by builders looking for teardowns, as well as landlords looking for decent rental income.
But there’s some hope for 2018! Realtor.com predicts that the housing supply pinch will begin to ease late in 2018.
Home sales could rise
Good news for home owners who plan to sell (and buyers seeking existing property)! Resales of existing homes are expected to rise modestly in 2018. The median estimate is that existing home sales will rise by 2.5%. And sales of new homes are expected to rise a median of 7% in the coming year. Of course, in the highly desirable neighborhoods such as: close to Uptown, strong schools districts, greater walkability areas, waterfront properties, etc., where there is a limited supply of homes available, expect greater returns.
According to Realtor.com, cities in the South will show the most sales growth in 2018. A chief economist says she expects 6% existing home sales growth, particularly in markets such as Dallas; Tulsa, Oklahoma; Little Rock, Arkansas; and Charlotte, North Carolina, because those places are not as “regulation constrained,” we have strong regional economies, and developers have plenty of vacant land to build on. That’s good news for the Queen City!
Now for some of the not-so-positive trends…
Mortgage rates head up
Mortgage rates are expected to rise in 2018. CoreLogic, a data provider for the real-estate industry, averaged six forecasts of mortgage rates, arriving at a consensus view that the 30-year fixed will average 4.7% in December 2018. In November 2017, the 30-year, fixed-rate mortgage averaged 4.07%.
“Not only are mortgage rates higher, but mortgage rates will be at the highest level since 2011,” said an analyst at the Urban Institute symposium. “So we’re looking at an environment, going forward, where this era of cheap mortgage rates will largely be behind us.”
Keep in mind, interest rates are notoriously resistant to prediction. At the beginning of 2017, most people expected mortgage rates to rise steadily throughout the year. And they did rise — but only for a few weeks.
If, as expected, home prices and mortgage rates go up in 2018, homes will be less affordable.
For example, if mortgage rates rise to 4.7% toward the end of 2018, and the median price of existing homes rises by 4.1%, then monthly mortgage payments for a typical house would rise substantially.
But according to an Urban Institute analysis, middle-class families in much of the country still have some financial wiggle room if rates and prices rise in 2018. Most home buyers are still qualifying for conservative mortgages that don’t stretch the limits of affordability.
Tax reform affects buyers and owners
The new tax reform retains the old capital gains exclusion, but mortgage interest tax deduction is treated differently in the coming year. Effective in 2018, the new law reduces the maximum amount of mortgage debt to acquire a first or second residence for which you can claim itemized interest expense deductions from $1 million (or $500,000 if you use married filing separate status) to $750,000 (or $375,000 if you use married filing separate status). The new tax law limits your deduction for state and local income and property taxes to a combined total of $10,000 (or $5,000 if you use married filing separate status).
Overall, 2018 appears to be a mixed blessing, but I continue to feel strongly optimistic about property in the Charlotte area. Our proximity to both beach and mountains, continued growth in the job sector, the local (usually moderate) temperatures, and the influx of new residents heading our way make for a solid real estate market. As always, if you need help buying or selling, I hope you’ll reach out to me with your needs. Let’s make 2018 the best yet!