This could be a tough year.
All the same, real estate experts have a nuanced take on what “tough” looks like.
A robust second half of 2017 may foreshadow a more productive 2018 in terms of housing starts.
Builders can expect a continued fight with trends that have characterized the last few years: shortages of labor and buildable lots, as well as a ramp-up in laws and regulations.
Rising Interest Rates
Low inventory, low interest rates, high prices. That was the 2017 housing market in a nutshell, according to Inman analysts.
At least one of those trends will likely reverse course in 2018.
30-year fixed rate mortgages have been hovering at an average interest rate of 3.9%. A team of top Zillow analysts projected that in 2018, that number will rise to 4.5%. This is still within the threshold of affordability for most buyers, but some may decide to sit this year out.
New construction won’t be enough to offset the lingering shortage in most markets, says Lawrence Yun, chief economist of the National Association of Realtors. It’s still a seller’s market, and there are no indications that will change in the coming year. Since the majority of sellers are also looking to buy, these sellers will be “prisoners in their homes,” despite the lucrative market, says Mark Fleming, chief economist of First American Financial.
Lawrence Yun is concerned about home prices most of all, citing a dramatic rise over the last few years- “four to five times faster than income growth.” According to a CoreLogic report half of the housing stock is overvalued in the top 50 markets.
Incomes are projected to grow in 2018, which could alleviate a bit of that pressure. However, rising interest rates could erode even those affordability gains all the same.
The Impact of Tax Reform
Under the recently-passed tax bill, property values could take a fall. The tax bill will be felt the most by homeowners in expensive coastal markets in New York and California, who will notice their property taxes have gone up. It may also slow growth in the spring as the public takes time to understand the impact of the bill on their specific situation. Accountants may find their phones ringing off the hook.
It may not be the smoothest ride, but 2018 does hold some promise for the industry, and especially for those who can make the most of the year’s unique challenges and opportunities.