The U.S. housing market just came off a banner year. Now every buyer, seller, and real estate pro wants to know if real estate remains the gift that keeps on giving in 2018.
People who predicted things would slow last year were surprised that the market actually got hotter. So… what do we think the housing forecast looks in 2018? Here’s the abridged version for those in a hurry:
- The Good: Experts don’t see evidence of a bubble.
- The Better: Technology breakthroughs in housing signal progress and fairness.
- The Best: A stronger U.S. economy means a robust housing market.
Yesss! No bad news ahead!
However, the tax legislation passed last December emphasizes the “Tale of Two Countries”. The more highly populated markets are likely to slow down whereas you could see demand escalate elsewhere. But even with these pockets of slowdown, all arrows are still green and facing up.
The good: bubble-free forecast
Demand for houses, particularly modest-sized homes, continues to outpace inventories as millennials become first-time buyers and their parents choose to remain in their homes. The inventory issues are pushing prices higher in many areas, but experts are predicting a smaller average jump this year. Realtor.com and the Mortgage Bankers Association are predicting that mortgage interest rates will rise, which will affect affordability. On the other hand, people who start seeing the results of the tax changes in their bank accounts could be encouraged to jump in before rates climb again. Also, keep in mind, unlike when the bubble burst a decade ago, the average buyer has less debt to value on their property nowadays.
The better: technology transformation
Technology has dramatically transformed the workplace, is now impacting home life and has changed the real estate industry. Remote work models, collaborative office space organizations like WeWork, and the cloud have many convinced they can work anywhere, from urban centers to more rural communities.
On the home front, the advent of smart devices gives people a greater sense of control over their security, energy usage, and living space. Homebuyers, particularly younger ones, expect homes to have the latest gadgets and plenty of plugs.
Finally, technology has people shopping for homes, mortgages and more online. This consumer empowerment will also impact data demands from savvy real estate agents and homebuyers looking for sophisticated analysis of markets, ROIs and projected returns — the types of real estate analysis readily found on Intelerit’s platform.
The best: a strong economy
Consumer confidence in the economy — and particularly their income — encourages them to buy bigger ticket items. So, solid economic growth and a positive employment picture will spur demand for housing nationally. Additionally, real estate construction is part of the gross domestic product (GDP) numbers, so builders trying to feed a hungry market also boost the economic picture.
The tax reform’s likely impact
The new tax law directly impacts homeowners, particularly in states with higher property taxes, income taxes, and property values. It limits deductions for any state and local taxes to $10,000 for a couple filing jointly. The measure also capped the mortgage interest deduction at home values up to $750,000 for homes bought after Dec. 15 (it was $1 million).
One of our partners, ATTOM Data Solutions, analyzed the impact and found it would have affected 99,000 home purchases or 3.9 percent of home purchase loans in 2017. The areas more affected are going to be California, New York, Massachusetts and sections of Arizona and Washington, where buyers depend heavily on mortgages and over 50% of those loans are above the $750k price tag… ouch. The state and local tax limitation will also have an impact in those areas as well as parts of New Jersey, Texas, Virginia and other higher-tax states.
In our forecast, these changes will undoubtedly slow the pace early in 2018 for the affected areas. But any effects on already red-hot markets are not likely to last and, in the interim, could encourage people to explore home buying in other parts of the country.
Fellow Floridians need not worry, as we are largely un-impacted thanks to our low-taxes; and we reign, along with Texas, as the states with the highest percentage of cash transactions in the country. Add Florida’s friendly entry prices, averaging under the $300k mark, and the sunshine state has never looked better as a Real Estate heaven.
Housing: a sound investment
Since housing prices hit bottom nearly a decade ago, home ownership has rebounded, proving once again that owning a home is a sound investment. Prices during this period rose more than 30 percent nationally, and more in hot markets. The return on investment has far exceeded the stock market, and we are not even counting cash on cash returns.
While the tax law will affect some areas, changes are not likely to last and the initial resistance can be a good entry point for smart investors. The demand and value propositions are too high.
The key to real estate success going forward will be in approaching various markets tactically to capitalize on pockets likely to peak in the future. Leveraging analytics, market forecast, and technology like the Intelerit Platform can help you find the best-undervalued properties in your area. You can try it for free here.
Happy real estate investing!