Five Real Estate Issues and Trends to Watch in 2018

By Jeff Detwiler, Chief Executive Officer, The Long & Foster Companies.

Dec 201707

Five Real Estate Issues and Trends to Watch in 2018

By Jeff Detwiler, Chief Executive Officer, The Long & Foster Companies.

Mortgage rates will increase modestly, inventory will continue to be a challenge in many areas of the market, and home values are expected to rise in the coming year. Housing market predictions for 2018 aren’t very different from the past few years with the exception of a wild card: taxes.

Certain homebuyers could see the benefits of homeownership reduced under proposals in both chambers of Congress, and that could affect the higher-value, or luxury, segments of the housing market.

Fiscal policy that supports homeownership is crucial, because owning a home gives Americans access to wealth that many simply might be unable to accrue otherwise. Home equity is about one-third of total net worth for Americans, according to the U.S. Census Bureau.

Here’s more on that and some other housing market issues and trends to watch in the coming year:

Inventory will likely remain low. Lack of available homes in certain segments of the market dominated real estate headlines month after month in 2017 and 2016. The next year is expected to bring more of the same.

Home prices will continue to rise. Home values in many of Long & Foster’s markets across the Mid-Atlantic and Northeast hit historic highs in 2017, and that trend is likely to continue as well. Conditions favor sellers, but only if they have somewhere to go.

Rising values plus lack of inventory might mean more homeowners taking equity out of their houses for renovations. In that regard, we see home improvement and remodeling businesses as the winners. A family that needs an extra bedroom might add on to their current home rather than move to a new property.

Interest rates will rise but will remain at historic lows. Rates have recently increased to the low 4s, and we don’t expect to see them go higher than 5 percent in 2018. A modest increase might dampen refinancing, but most that were inclined to secure lower rates have done so by now. Purchases are still expected to go up despite any modest interest rate increases.

Tax law will be critical to watch. Demand could start to shift at the higher end of the real estate market if Congress eliminates or reduces tax incentives for homeownership – primarily property tax and mortgage interest deductions. The proposal in the U.S. House of Representatives makes $500,000 the maximum mortgage amount for which interest can be deducted on new loans. Currently, the deduction is capped at $1 million for taxpayers who are married filing jointly.

This year, only 5.4 percent of all mortgages nationwide were above that half-million threshold, but D.C. has the highest percentage of those at 35.1 percent, according to ATTOM Data Solutions. Many buyers in the upper price ranges would have less incentive to buy or build under this proposal. Those buyers would also be affected by plans to limit the property tax deduction to $10,000 or cut it entirely.

If these changes are passed, demand for new luxury purchases could slow down after seeing robust growth the past couple years. We could also see downward pressure on pricing in the high-end market, mainly those properties below the $3 million to $4 million range. For now, we expect the luxury market to be flat over the next year.

Millennials, the largest segment of homebuyers, will continue to enter the housing market, encouraged by a relatively low cost of borrowing plus the continuing trend of rising home prices. Family formation among this group is also ticking up, so many are looking for more space for their expanding families.

Overall, we expect the coming year to bring more of the same trends we experienced in 2017; however, affordability may become a growing concern, as interest rates and prices appreciate. The best thing buyers and sellers can do in this climate is find a professional Long & Foster Realtor, who will know how best to navigate a continuing low-inventory, high-demand market. To get the home you want, it’s more important than ever to go into it prepared, with financing lined up and proof from your lender showing sellers that you’re pre-approved.

Buyers and sellers can find a lot to like about this housing market, if these predictions hold true. We will closely monitor tax changes to see how clients in our regions would be affected.

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