Predictions for the new year forecast moderate gains in home prices and rising inventory levels, while low unemployment and record levels of consumer confidence mean more buyers are feeling good about their finances. According to Javier Vivas, Realtor.com’s director of economic research, here are some reasons why 2018 is a prime time to jump into the housing market.
1. Rates are rising
After years of record-low interest rates, the Federal Reserve now is making some increases: The rate for a 30-year fixed mortgage broke the 4 percent mark this past year. And with economic growth continuing to carry momentum, we should see at least two to four more rate increases throughout 2018. Rates are expected to hit 5 percent by the end of the year. Increases would further constrict affordability, which means the longer you wait the more expensive it will be to buy due to home prices and inflationary pressure.
2. Prices are climbing
Home prices have soared during the past few years, pricing otherwise well-positioned buyers out of high-cost areas. But in 2018, price increases are expected to moderate. Vivas forecasts a home price increase of 3.2 percent year over year, after finishing 2017 with a 5.5 percent year-over-year increase. Existing-home sale prices are predicted to increase 2.5 percent year over year. However, this all depends on where you live. Red-hot markets such as San Francisco are predicted to finally lose some steam, while sales numbers and home prices are poised to climb in Southern states such as Texas and Florida, where economic momentum continues and new construction is occurring in the right price points. This means that home prices still will increase, but not at the same pace as they have during the past few years.
3. Inventory levels will increase
An inventory shortage has plagued the U.S. housing market since 2015, forcing some buyers to settle and keeping others out of the buying game entirely. But by fall 2018, the tides will begin to turn, with markets such as Boston, Detroit and Nashville recovering first. The majority of inventory growth will happen in the middle- to upper-tier price point, in the ranges of $350,000 and $750,000 and above $750,000, Vivas predicts. New home construction also is expected to expand. But that will happen slowly, thanks to a constricted labor market, limitations on the amount of lots and available land, tight bank financing for building loans and a run-up in building material prices.