I was curious about what “those in the know” were talking about for 2018 in terms of trends and things to watch.
There are a ton of opinions on this every year around this time, but I found one that looked fairly reasonable – and, for once, didn’t say a thing about blockchain, thankfully.
The piece looked at 6 predictions in particular that they thought made sense.
Since having a sustainable REI business relies on being ahead of the curve, I thought I’d pass them on.
Prediction #1: The pace of sales will slow early in the year—but not for long.
They believe that several provisions in the recent tax bill signed into law by President Trump will directly impact housing, including changes to both the mortgage interest deduction and to property tax deductions.
And, that other provisions will impact how much money people have, in a good way, which means more disposable income for the masses.
They believe this will continue to support strong and even increasing demand, as renters who would like to buy may now have the cash to make the move.
Prediction #2: Inventory will continue to be a drag.
They called the lack of inventory the “defining trait “ of the housing market in 2017.
Forecasters thought that the trend would reverse itself by the end of 2017, but instead it only got worse.
The forecasters are split on what will happen, but in general they believe that inventory will pick up “slightly.” Whatever that means.
They cite 3 factors that may drive an increase: The first is that the current situation isn’t sustainable, because prices cannot continue to rise faster than wages forever.
The second is that due to the higher prices, more folks will decide to sell, due to either life events or wanting to trade up.
And the third is now that we’re well past the hurricanes and wildfires that wreaked havoc last year, housing starts will rebound as the construction resources that were absorbed by disaster rebuilding will be refocused there.
Prediction #3: Price growth will slow—but not stop.
They stated that national home prices have climbed for 23 consecutive months, and from January through October 2017 the Case-Shiller U.S. National Home Price Index increased 5.92%, on track for the biggest gains since 2013.
As a result of Prediction #2 and the increase in inventory, however, they believe that price growth will moderate in most of the country.
Most... it’s unlikely that folks on the either coast will see any moderation at all.
Prediction #4: The rent-versus-buy equation could tilt toward renting in costly markets.
One of the things you may have read about the new tax bill is the change in deductibility of state income taxes.
That means higher taxes in high-tax states like New York, New Jersey, Connecticut, California and Illinois, and that it just got more expensive to own a home in those states.
They’re predicting that for some people, the changes combined with rising prices, may mean renting makes more financial sense than buying, especially concerning recent college grads with big student loan debts.
Prediction #5: Mortgage rates will hover around 4%.
The reported that in December, the Fed raised short-term interest rates a quarter of a percent to between 1.25% and 1.50%.
That usually has a corresponding impact on mortgage rates, but after 3 interest rate increases in 2017 and 2 in 2016, mortgage interest rates increased slightly.
They expect this reaction to continue, and that we’ll finish 2018 with mortgage interest rates around 4.5%.
Prediction #6: Millennial demand for housing will keep climbing.
Ahhh, millennials. They will and they won’t buy, and they can and can’t afford to. Depending on who you talk to.
Overall, though, the author believes that the generation of adults born after 1980, after being very slow to enter the housing market, will now jump in as they start to get married and have kids.
And that single millennials are more likely to own a home than prior generations of singles.
Nobody has been able to predict their actions to this point, so personally I’m taking a wait-and-see attitude toward this prediction.
What’s your prediction?
Share in the comments section below.
Dennis Fassett
earned a BS in Economics and followed that up with an MBA in finance. After working and corporate finance and banking for several years, he started buying single family houses, and quickly built a very nice portfolio of cash flowing rentals. When the credit markets started to dry up and he couldn’t get any additional single family mortgages he shifted his focus to apartment buildings. He now has over $3 million in rental real estate. He manages most of it his self and still has a day job. Dennis has even created his own Private Equity fund to buy apartment buildings.