Housing Trend is shaping up to improve in 2018:

  • Home prices are Climbing, but not as fast as previous year
  • More houses are likely to be for sale this year, but inventory still is very low
  • Shortage of Inventory is continuing to support a "Sellers" market
  • The Good News is Homeowners will have more equity to borrow from

Yet in other ways, 2018 might continue to be challenging, especially for home buyers. Mortgage rates are likely to rise, reducing affordability.

1. Home prices decelerate

Good news for first-time home buyers: Home-price appreciation is expected to cool off a bit in 2018 after a couple of volatile years.

Home prices rose 6.3% in 2016, according to the Federal Housing Finance Agency. Home prices exceeded 6% in 2017, too. But for next year, the median forecast among six industry and lender groups is for a 4.1% increase in existing home prices nationwide. and in our Local Chicagoland Market.

 

What is causing 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. I have noticed many builders are returning to the market end of last year and again this year. The median estimate has single-family housing starts rising about 8% in 2018, to roughly 912,500 new houses.

2. More homes for sale

Home buyers are struggling to find houses for sale. The shortages are especially acute for the kinds of homes that first-time buyers tend to get. Among the reasons for the tight supply:

  • Many baby boomers are staying in their homes instead of downsizing
  • Investors bought millions of homes after the housing bubble burst, and they’re making too much money as landlords to sell
  • Home builders make more profit from expensive houses than entry-level houses, so that’s what they’re constructing

But there’s some hope for 2018: Realtor.com predicts that the housing supply pinch will begin to ease late in the year.

“It looks like we could get to a point where we’re seeing growth in inventory sometime in the fall of 2018,” says Danielle Hale, chief economist for Realtor.com.

3. Home sales could rise

Resales of existing homes are expected to rise modestly in 2018. The median estimate is that existing home sales will rise 2.5%, to 5.6 million units.

Meanwhile, sales of new homes are expected to rise a median of 7%, to 653,500 newly built single-family houses.

According to Realtor.com, cities in the South will show the most sales growth in 2018. Hale says she expects 6% existing home sales growth, particularly in markets such as Dallas; Tulsa, Oklahoma; Little Rock, Arkansas; and Charlotte, North Carolina. She says those places are not as “regulation constrained,” they have strong regional economies and developers have plenty of vacant land to build on.