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Projecting the U.S. Housing Market in 2018

By
Industry Observer with Spectrum Communications

Over the past several years, average home values have steadily risen due to a sustained period of historically low mortgage interest rates, combined with a growing housing inventory shortage. The country’s median home value grew by over 6% from 2016 to 2017, putting the average valuation at just over $200,000.

Those that already own homes will immediately notice the benefits of growing property values in 2018, especially homeowners who decided to refinance and lock in lower interest rates during the national push to reinvigorate the housing market following the sub-prime mortgage crisis nearly a decade ago. Past pivotal decisions like this could result in thousands of dollars in savings for many households across the country, producing sizeable equity that can be used to either pay down existing debts or make new home investments, like hiring a team of bathroom or kitchen remodelers to revamp portions of their property to further heighten their home’s appraisal figure.

This dynamic could also lead to increased investment in new housing starts. Based on U.S. Census data, new home sales, to date, are at their highest levels in over a decade, and it’s projected that new home transactions will continue to rise from 1.2 to 1.3 million in the coming year. Generally, these figures paint an auspicious picture for the U.S. housing market this year, but it’s important to delve into them further to pinpoint exactly where this growth is coming from—long-time homeowners or first-time buyers.

A booming housing market typically bodes well for the prospects of first-time buyers, but as previously alluded, shrinking home inventory is a significant contributor to the consistent rise in property values. According to data published by Zillow, there are approximately 12% fewer available homes than in 2016. This creates more demand than supply and, as such, just over 50% of all inhabited homes now reside in the top tier of home values.

Some market observers believe that, as interest rates start to mirror pre-recession expectations and builders focus more on suburban construction to avoid the overhead of metropolitan development, the aggressive growth of home values will curb just enough to prevent first-time home ownership from becoming too cost-prohibitive. Despite the optimism driving this projection, this may be a long-term trend that is tracked over the course of years, as opposed to an immediately decisive factor. The challenge is that many young people still ascribe a lot of cultural capital to city living, especially those that have lived with friends or family in the suburbs for a significant portion of their lives.

Eventually, the cost of living in the city versus the suburbs may become so pronounced that we see a new suburban migration, but it shouldn’t be considered a certainty at this point.

Another crucial factor in assessing the national housing market this year is recognizing the changing criteria for what is considered a major market. When we think of booming housing markets, we think of staple locations, like New York City or Los Angeles; but what about less-recognized locales like Charlotte, Orlando, or San Antonio? Cities like these have seen staggering population and economic growth. In the past, first-time buyers would be all-but-guaranteed to find more value in these markets, but if wages in these areas outpace new construction, it could lead to the pervading national housing trend we’ve tracked so far: homes becoming scarcer while increasing in value.

To contextualize this with a real-world example, we could see a microcosm of this trend play out once Amazon chooses the location for its second headquarters. Some of the cities to make the shortlist include Nashville, Austin, Columbus, Newark, and Raleigh, with usual suspects like Chicago, Boston, Atlanta, and Washington D.C. rounding out the list. Any one of these markets could soon see a massive influx of jobs, spending, and urban development, which, in turn, could either make their respective housing markets more accessible to all—or just more profitable for those that have already made investments in them.

The U.S. housing market in 2018 will likely present a stark, unavoidable dichotomy: rising valuations and excellent reinvestment opportunities for those with one or more homes, while first-time buyers run headlong into more competition and a lack of accommodating housing inventory—even in places they wouldn’t normally expect to be affected by high listing prices and property scarcity. 

Susan Jacobsen
The Alliance Group Realty - Hilton Head Island, SC
20 Years Providing WOW Real Estate Service

Kevin - like your reiteration of the overall market, of course, as always, real estate is local but your information could certainly be a value in someone's individual newsletter - thanks!

Jan 19, 2018 03:21 PM