These Real Estate Trends Will Be Game-Changers in 2018
Game-changer no. 1: Supply finally catching up with demand
After three years of a crushing shortage of homes for sale, the realtor.com economics team is predicting that the shortfall will finally ease up in the second half of 2018.
“The majority of the year should be challenging for most buyers, but we do expect growth in inventory starting in the fall,” says Danielle Hale, chief economist for realtor.com.
That’s a potentially transformative development for many would-be buyers who've been frustrated in their search for a home that meets their needs—and their budget.
“Once we start to see inventory turn around, there is plenty of demand in the market,” Hale says.
Bullish construction is the engine that’s turning this ship around, bringing new homes to the market and creating opportunity for people to trade up into new homes.
“It’s adding inventory instead of just shuffling people around in existing homes,” Hale says.
But those itching to buy a starter home may have to be patient for a while longer.
“We expect the relief to start in the upper tiers, and it will make its way down to the lower tiers,” Hale says. Specifically, most of the initial inventory growth will be in the mid- and upper-tier price ranges, $350,000 and up.
As the market eases, home prices are expected to slow to 3.2% growth year over year nationally. But again, it’s the higher-priced homes that will be appreciating less. And even slower appreciation still means that prices will continue to rise.
“Overall, prices are expected to increase, and we’re expecting to see more of that in lower-priced homes,” Hale says. “It will get a bit worse before it gets better for buyers of starter and midprice homes.”
Game-changer no. 2: Millennials starting to come into their own
The housing market in 2018 will continue to present challenges for millennials—sorry, all of that student loan debt isn’t just going to disappear—but there are some bright spots on the horizon for these millions of Americans.
Millennials seem to be having more success at taking out mortgages on homes at varying prices, and not just starter homes, Hale says.
“They’re at that point where they’re seeing their incomes grow, and that will help them take on bigger mortgages,” she says. That’s because of both the overall strong economy and their own career development.
And as the largest generation in U.S. history reaches that sweet spot in their 20s to 30s when they're settling down and starting families, they're particularly motivated to buy. Millennials could make up 43% of home buyers taking out a mortgage by the end of 2018, up from an estimated 40% in 2017, based on mortgage originations. That 3% uptick could translate into hundreds of thousands of additional new homes. As inventory starts to rebound in late 2018 and in years to come, first-time home buyers will likely make up an even larger share of the market.
They probably shouldn't wait too long to buy, either—mortgage rates are expected to reach 5% by the end of 2018 due to stronger economic growth, inflationary pressure, and monetary policy normalization.