With a new year comes new predictions. To better assist clients entering the market in 2018, here are four of the 2018 real estate trends and questions that may come up as the spring buying season approaches.
Supply and Demand
While the demand for housing remains strong, the inventory shortage you may have personally experienced in the past year is likely to continue.
Some homeowners seeing increased equity, who may have considered selling, are holding off. This shortage will continue to drive home prices higher. According to the National Association of Realtors, prices may jump an additional 3.5 percent; Freddie Mac forecasts a 4.9 percent increase in price and only a 2 percent increase in both new and existing home sales this year. With stronger than average price increases and limited supply, potential buyers may find they need to dip deeper into their disposable income to make their purchase.
Tip: Potential buyers need to understand that they may need to move quickly, should the right property become available. Negotiations are an important part of your value-add, so let them know up front what kind of concessions they may want to consider. First-time homebuyers may want to look at other options—such as purchasing a two-family unit, for example. The rental would help pay the mortgage and they would be building equity until more single family homes or new construction becomes available. Keep an eye on FSBO and listings that failed to sell previously—both may be willing to entertain offers.
Builders have been focusing on the higher end of the market in recent years. That real estate trend is expected to change as builders begin to prioritize new and affordable homes to meet increasing demand. According to the Federal National Mortgage Association (Fannie Mae), an increase in new construction is expected to be a primary 2018 real estate trend.
Tip: You should be aware of any and all new development in your community. Keep your finger on the pulse of the local planning board and bring your expertise to the table. What are home buyers looking for and how might builders and contractors meet the demand?
Interest rates have risen four times since December of 2016, one of several real estate trends adding to the overall cost for potential home buyers. Last fall, industry-watchers held their breath in anticipation of the Trump administration’s pick for the new Federal Reserve Chairman. An audible sigh of relief could be heard when Fed board member Jerome Powell was chosen to succeed Janet Yellin. Powell, who has aligned himself closely with Yellin, is expected to continue taking a cautious approach to interest rate increases. As long as unemployment remains below five percent and inflation doesn’t exceed 2 percent, modest increases of one-quarter basis points should be expected.
Tip: Remind new buyers worrying about interest rates that they are able to lock in rates from 45 days for an existing home, up to six months for new construction. Explain to younger buyers that, while rates may be rising, they are significantly lower than in past decades.
The 2017 Tax Reform Bill
It is hard to anticipate the impact of the newly passed Federal tax bill’s $10,000 cap on state and local tax deductions on prospective home buyers. The Trump administration hopes the bill, which includes significant tax breaks for large corporations, will encourage job creation and increase wages. While many economists are doubtful, the administration’s hoped-for increase in GDP could have the adverse effect of increasing inflation. Other variables to watch include a correction in the stock market or escalated conflicts around the world.
Tip: Expect some concern over the $10,000 cap particularly in and around some urban areas. For first-time buyers and empty nesters, a smaller home is likely to make it under the cap. For seasoned buyers with more resources, this change should prove to be less of an issue than other 2018 real estate trends.