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2018 Real Estate Market Trends
Examining eight key real estate and housing prediction trends

Predicting future real estate market trends with 100 percent certainty is almost an impossible task. However, key insights from 2017 will certainly be helpful in laying out our predictions for the real estate market at least through 2018. According to Zillow, 2017 was full of record-breaking home price growth coupled with an inventory shortage of for-sale homes. But there are changes on the horizon. Let’s take a look at eight key real estate and housing prediction trends for 2018. Overall, we anticipate slower home price growth, slightly improving inventory levels and evolving design trends ahead.

Deceleration of Home Prices – Home prices rose more than six percent in both 2016 and 2017, according to the Federal Housing Finance Agency. But for 2018, the median forecast among six industry and lender groups is for a 4.1 percent increase in existing home prices nationwide.

Increased Construction of Single-Family Homes – The construction of single-family houses is expected to rise sharply in 2018, based on the level of building permit applications. The median estimate has single-family housing starts rising about eight percent in 2018 to roughly 912,500 new houses.

Easing Housing Inventory – On a nationwide basis, for-sale housing inventory was expected to remain tight in the first quarter of 2018, reaching a 4 percent year-over-year decline in March. However, if inventories increase as predicted by the fall of 2018, that will be the first net inventory gain since 2015. The relief is expected to start in the upper tiers, and it will make its way down to the lower tiers. Initially, inventory growth will most likely be in the mid-to-high price ranges of $400,000 and up.

Higher Mortgage Rates – Mortgage rates are expected to rise in 2018. In November 2017, the 30-year fixed-rate mortgage averaged 4.07 percent. CoreLogic, a data provider for the real-estate industry, determined that it will average 4.7 percent in December 2018. By the end of the year, the mortgage rate will be at the highest level since 2011, reaching five percent due to stronger economic growth, inflationary pressure and an easing of monetary policy.

Home Prices Continue to Rise – 2017 was full of record-breaking home price growth. Home prices are expected to climb 4.1 percent in 2018 — 1.1 percentage points higher than the “normal” annual appreciation closer of three percent, but slower than the current annual rate of 6.9 percent.

South to Lead Sales Growth – Southern cities are predicted to top national averages in home sales growth in 2018. Nationally, sales growth is predicted to grow by 2.5 percent, which can be attributed to healthy building levels combating the housing shortage. In the South, though, cities like Atlanta have attracted corporations and individuals with low costs, viable job markets, an educated workforce and high quality of life. The resulting economic growth, combined with an accommodating attitude toward builders, has set the stage for a boom in homeownership.

Increased Home Equity – As home values rise, homeowners gain equity. Banks are now predicting that millions of homeowners will increase their borrowing against their equity. About 1.6 million homeowners are predicted to get new home equity lines of credit in 2018, a 16 percent increase over 2017, according to a recent TransUnion study. The credit bureau says 67 percent of homeowners have enough equity to secure HELOCs, and 80 percent of those borrowers have high credit scores.

Increased Options for People with Credit Issues – Lenders are now targeting the borrowers who have had a life event and lost their homes or had to file bankruptcy but have recovered. Several lenders also are offering interest-only mortgages, as well as loans with limited income documentation. These mortgages are dubbed “non-QM” because they don’t meet Fannie Mae’s and Freddie Mac’s “qualified mortgage” rules. One prominent non-QM lender, Impac Mortgage Holdings, plans to begin securitizing these loans early in 2018.

Who’s Buying Homes in 2018?

This year, there are three consumer segments in particular that will have an important impact on the real estate market. These homebuyers are helping to drive the market now and will continue to do so in the coming months.

Millennials. Through 2018, millennials will mostly likely be the driving force in the housing market, even though the shortage of affordable entry-level properties has created a challenging barrier for them. By the end of the year, millennials could make up as much as 43 percent of the buyers’ market, according to Realtor.com.

Generation Z. Born between the years of 1995 and 2001, this segment’s oldest bracket is soon expected to enter the post-college housing market.

The Forgotten Generation. Anyone who is forced into a foreclosure must wait seven years before being able purchase properties again. According to the National Center for Policy Analysis, roughly 1.5 million Americans (many of whom were forced into foreclosure when the housing market crashed) will become eligible to re-enter the housing market in 2018.

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