Hot Housing Market Could Cool in 2018

Homes sales could slow in 2018! Why? As home sellers have had the upper hand with buyers over prices for many past years so, in 2018 it might at least be more of a fair fight. The rises in cost and tax law changes discourage many home buyers as many of them put their homes up for sale. Due to this situation the nation’s hot housing market could cool off next year. The shift in bargaining power won’t be dramatic. Economists say, many of the hottest housing markets on the West and East Coasts will continue to see sturdily rising prices. However, the pace of the run-up will likely slow as a market that has long favored sellers evens out somewhat.

Chief Economist of the National Association of Realtor says, “Existing home sales will possibly not make improvements in 2018 even as the economy generates more jobs. After the rise of 6.3 %, 3.8 % and 2.7 % respectively the current home sales are projected to be unchanged at about 5.6 million. Yun predicts, the median home prices will edge up about 2 % to $253,000 after averaging 6 % jumps since 2015.

DEMAND COULD COOL:

Since the launch of home price recovery in 2012, buyers have not been in the driver’s seat in many cities and there has not been much relief for house hunters recently. The existing home sales hit an 11 year high despite just 3.4 month supply of homes on the market which is the lowest since 1999 in November. The median home value driven up by meager inventory by 48 % since 2011. Better income growth and healthy jobs fueled the demand for houses, including from more Millennial first-time buyers. Simultaneously, many Baby Boomers are staying in their homes instead of selling and flocking to retirement havens.  

Many of the investors who buy houses to rent out or flip for a profit rather than to occupy, also have held onto their properties, reaping lucrative rents and sharp price expansions, says Ralph McLaughlin, chief economists of real estate research firm Trulia. And the construction of new homes has been curtailed by shortages of workers and available lots. But the tide may be turning. Yun says, the mounting prices combined with stagnant wages are making buyers less feasible for many prospective purchasers.

After falling this year, 30 year mortgage rates should increase from 3.9 % to 5 % by the end of 2018. The Republican tax-cut plan sparks a stronger economy and climbing concerns about the federal discrepancy. And all that could curb home buying.

MORE HOUSES AVAILBLE?

The haughty home prices should finally wheedle more prospective sellers to pull the triggers. McLaughlin says, “Homeowners may be thinking prices are going to peak”. In spite of scarcities of workers and lots, home builders are expected to incline construction to meet steady demand. Housing starts are projected to rise 2.2 % next year to 1.3 million. What is the result we got from it? Well, more houses in result could come on the market even as buyers pull back.

TAX-CHANGE IMPACT:

There is also a tax cut package. Last week the package signed into law by President Trump will cap the deduction for property and state and local income taxes at $10,000. This law could particularly affect a state like New Jersey which has the country’s highest property taxes, expensive homes and high state income tax. This may discourage homeowners to sell their homes and move to lower tax states. The tax bill also caps the loan interest deduction at home values up to $75,000 down from $1 million for homes bought after December 15.

NO LET-UP IN PRICE GAINS?

The mortgage interest limit will more likely lead some prospective sellers to stay in their homes to hold onto their tax savings and further crumpling supplies and pushing up prices in an already tight market.  Mark Fleming, chief economist at First American Financial predicts that the inventory crunch will worsen across the U.S next year and many homebuyers are inclined to stay in place for fear of not finding another house to move in, in a competitive market or they may don’t want to take a new higher rate mortgage.

The rate of home ownership for households controlled by people under 35 increased to 35.5 % in the second quarter from 34.1 % a year earlier. Fleming says, “All those renters want to buy homes”. In spite of contradictory views, there are some signs that the overall market may cool. McLaughlin says, “We are seeing waning interest in buying a home and greater interest in selling one”.