Realtor.com just released their annual housing forecast for 2018, which predicts national inventory growth will trend into positive territory for the first time since 2015. The forecast ranks top housing markets for 2018 based on sales and price gains, and named Dallas-Fort Worth-Arlington No. 2 in the nation.
“We are forecasting next year to set the stage for a significant inflection point in the housing shortage,” said Javier Vivas, director of economic research for realtor.com. “Inventory increases will be felt in higher priced segments after home buying season, which limits their impact on total sales for the year. As we head into 2019 and beyond, we expect to see these inventory increases take hold and provide relief for first-time home buyers and drive sales growth.”
Sales and price growth predictions specific to the Dallas metro for 2018 include a 6.02 percent increase in sales, and a 5.57 percent increase in price. Dallas was also recently ranked the 9th fastest-growing metro in the United States based on rising homeownership levels. With a 4.8 percent increase in the home ownership rate over the past three years, demand is pushing the median home price to $339,950.
According to the realtor.com 2018 National Housing Forecast released Wednesday, inventory constraints, the dramatic rise in home prices, and difficulty for buyers to enter the market, will begin to ease next year as part of broad and continued market improvements. Additionally, the report expects to see an increase in millennial mortgage share and strong sales in the Southern markets.
The annual forecast, which is among the industry’s bellwethers in tracking and analyzing major trends in the housing market, says the wildcard in 2018 will be the impact of the tax reform legislation currently being debated in Congress.
Realtor.com® Forecast for Key Housing Indicators
Housing Indicator Realtor.com® 2018 Forecast
Home price appreciation 3.2% increase, enabling a sales pickup
Mortgage rate Averaging 4.6%, reaching 5.0% (30 year fixed) by end of year
Existing home sales 2.5% growth, low inventory trend starts to reverse
Housing starts 3% growth in home starts; 7% growth in single family home starts
New home sales Increase 7%
Home ownership rate Stabilizes at 63.9% after having bottomed in Q2-2016
Five Housing Trends for 2018
- Inventory begins to increase – Beginning in August 2017, the U.S. housing market started to see a higher than normal month-over-month increase in the number of homes on the market. Based on this trend, realtor.com projects U.S. year-over-year inventory growth to tick up into positive territory by fall 2018, for the first time since 2015. Inventory declines are expected to decelerate slowly throughout the year, reaching a 4 percent year-over-year decline in March before increasing in the early fall, after the peak home-buying months. Boston, Detroit, Kansas City, Nashville and Philadelphia are predicted to see inventory recover first. The majority of this growth is expected in the mid-to-upper tier price points, which includes U.S. homes priced above $350,000. Starter homes are expected to take longer to recover because their levels have become so depleted by first time buyers.
- Slowing price appreciation – Home prices are forecasted to slow to 3.2 percent growth year-over-year nationally, from an estimated increase of 5.5 percent in 2017. Most of the slowing will be felt in the higher-priced segment as more available inventory in this price range and a smaller pool of buyers forces sellers to price competitively. Entry-level homes will continue to see price gains due to the larger number of buyers that can afford them and more limited homes available for sale in this price range.
- Millennials gain market share in all home price segments – Although millennials will continue to face challenges next year with rising interest rates and home prices, they are on track to gain mortgage market share in all price points, due to the sheer size of the generation. Millennials could reach 43 percent of home buyers taking out a mortgage by the end of 2018, up from an estimated 40 percent in 2017. With the largest cohort of millennial expected to turn 30 in 2020, their homeownership market share is only expected to increase.
- Southern markets will lead in sales growth – Southern cities are anticipated to beat the national average in home sales growth in 2018 with Tulsa, Okla.; Little Rock, Ark.; Dallas; and Charlotte, N.C.; leading the pack. Sales are expected to grow by 6 percent or more in these markets, compared with 2.5 percent nationally. The majority of this growth can be attributed to healthy building levels combating the housing shortage. With inventory growth just around the corner, these areas are primed for sales gains in years to come.
- Tax reform is a major wildcard – At the time of this forecast, both the House and Senate had bills up for consideration, because neither had passed at the time they were not included in the forecast. Both proposed tax changes had provisions that are likely to decrease incentives for mobility and reduce ownership tax benefits. On the flip side, some taxpayers, including renters, are likely to see a tax cut. While more disposable income for buyers is positive for housing, the loss of tax benefits for ownership could lead to fewer sales and lower prices with the largest impact on markets with higher prices and incomes.
Next year, home prices are anticipated to increase 3.2 percent year-over-year after finishing 2017 up 5.5 percent year-over-year. Existing home sales are forecast to increase 2.5 percent to 5.60 million homes due in-part to inventory increases, compared to 2017’s 0.4 percent increase or 5.47 million homes. Mortgage rates are expected to reach 5.0 percent by the end of 2018 due to stronger economic growth, inflationary pressure, and monetary policy normalization in the year ahead.
2018 Top Housing Markets (based on largest sales and prices gains)
- Las Vegas-Henderson-Paradise, Nev.
- Dallas-Fort Worth-Arlington, Texas
- Deltona-Daytona Beach-Ormond Beach, Fla.
- Stockton-Lodi, Calif.
- Lakeland-Winter Haven, Fla.
- Salt Lake City, Utah
- Charlotte-Concord-Gastonia, N.C.-S.C.
- Colorado Springs, Colo.
- Nashville-Davidson–Murfreesboro–Franklin, Tenn.
- Tulsa, Okla.
Realtor.com’s model-based forecast uses data on the housing market and overall economy to estimate values for these variables for the year ahead. The forecast result is a projection for annual total sales increase (total 2018 existing-home sales vs. 2017) and annual median price increase (2018 median existing-home sales price vs. 2017).