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State of the Housing Market in 2018

As we look toward 2018, the housing market continues to show few signs of slowing down, although there are hints of developing headwinds. While it’s true that housing prices are very much geographically based, across the entire U.S., experts are predicting home prices to rise about 4.5 – 5.5% this year.

Let’s examine a few facts and predictions.

Current State of Housing

  • According to the U.S. Census Bureau, home ownership stands at about 64%.

  • As the end of 2017, the median home value in the United States was $203,400.

  • From 2012-2017, the median sales price of existing homes has increased by the following amounts: 6.6%; 11.4%; 5.8%; 6.5%; 5.1% and 5.8%.

  • The low inventory has driven up the median home value by 48% since 2011.

  • Existing home sales are projected to be unchanged at about 5.6 million after rising 6.3%, 3.8% and 2.7%, respectively, each of the past three years.

  • At the end of 2017, existing home sales hit an 11-year high despite just a 3.4-month supply of homes on the market, the lowest since 1999.

Forward Looking Thoughts

  • The Pending Home Sales Index, a forward-looking indicator based on contract signings, moved by 0.5% - the index is now 0.5% higher vs. this time last year.

  • The National Association of Realtors predicts home prices will rise by about 5.5% in 2018.

  • The homeownership rate for households headed by people under 35 increased to 35.3% in the summer of 2017 from 34.1% a year earlier, according to Trulia and Census Bureau figures.

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Will the Housing Market Cool?

Despite the rosy state of the housing market and even rosier outlook among industry experts, there are some developing headwinds which might cause the housing market to cool.

First, most mortgage experts expect that mortgage rates will gradually climb with the 30-year fixed-rate average reaching 4.5-5% by the end of 2018. Historically, rising rates have slowed price growth and driven home prices down.

Next, a recent Trulia survey shows that for the first time in four years, buyer optimism is slowing: more Americans think 2018 will be worse than 2017 for buying a house as those who think it will be better.

Further, nearly 10% of all mortgages are considered “seriously underwater,” according to the most recent data compiled by Attom Data Solutions. Yes, one in ten.

Finally – and this is one of the most worrisome imbalances that few people talk about – remember that statistic that referenced the fact that median home value has increased by 48% since 2011? Well, what if you knew that wage growth over the same period has only increased by 15%?

Do you think that difference is sustainable?

What Does the Future Hold?

The fact is that no one knows exactly what will happen with the housing market in 2018, but looking at the facts can help paint a likely scenario.

For investors, I constantly remind them of this: your house is likely your biggest investment – maybe even bigger than your current retirement account. So, it’s best to be prepared for the coming year with a few educated guesses, especially if you’re looking to buy or sell a home.

Financial Advice For Personal and Financial Growth

The Sage Investor was founded as a resource aimed at educating and empowering individuals of all ages to make sound financial and lifestyle decisions.

The word “sage” reflects both our personal and investment values. The term sage has a variety of meanings, all of which are associated with our thoughtful investment management and genuine financial recommendations.

Get To Know Dwight Pendola, CFP®