For agents and brokers, 2018 promises to be a year of opportunity, with plenty of clients in markets nationwide poised to decide whether to make that leap into homeownership next year.
Omri Barzilay, a real estate investor and the CEO of Propcy, a real estate analytics company, recently told Forbes sees five things your clients should know about the housing market in 2018.
According to Barzilay, the last decade has been pretty good for housing prices. The first key to watch in 2018 is home price trends.
“After the housing market crash that started in 2008, we’ve seen a steady climb, with some markets rising faster than others,” he wrote in Forbes.
Over the last two years, home prices have been rising about e percent to 6 percent on average, according to the Case-Shiller Index.
“While no one can predict the future, we think it’s quite likely that home prices will continue to rise gradually in 2018,” he wrote.
National home price appreciation over the last six years looks quite normal relative to the previous 40 years. This appears to be one of the least volatile periods in the history of the Case Shiller Index. We think that is an indicator of a healthy market.
Looking at price and economic trends by city is Barzilay’s second area for clients to watch in 2018.
“There is always a lot of variation from one city to the next when looking at home prices, and that is certainly true today,” he noted.
Since 2011, West Coast markets like Seattle, Portland, San Francisco, Los Angeles, and San Diego have incredibly high home price appreciation. On the other hand, East Coast cities like Boston, New York, and Washington, D.C. have seen relatively lower appreciation.
Cities like Denver and Dallas also have seen high population growth, which has resulted in demand for housing outpacing supply.
Moreover, New York, Boston, Chicago, and Washington, D.C., have actually seen slower home price growth during this time.
A third area to watch in 2018 is supply, demand and shifting demographics.
“The national home price appreciation we’ve seen has made this a challenging time for prospective home buyers in many markets, including those who already own a home,” Barzilay noted. “With a greater portion of homes out of reach, more people are opting not to trade-up.”
This chokes the supply of lower priced, starter homes that appeal to first-time home buyers.
“The lack of inventory makes it a difficult proposition even for those who can theoretically afford to buy a home,” he added.
The fourth area worth watching in 2018 is credit constraints for clients.
The aftermath of the Great Recession brought new regulation and a changing mood in the lending industry. Mortgage lenders scrapped the looser lending criteria that had prevailed in the run-up to the housing crash and tightened their lending criteria.
“This has significantly curtailed the number of prospective borrowers who can be approved for a loan,” Barzilay pointed out. “While this means we do not face a threat of a 2008-style housing crash due to lax lending standards, it’s not all good news.”
As a result, some clients who want to purchase a home today may have been shut out of the market due to credit concerns.
According to Fannie Mae and Freddie Mac, more than 60 percent of their home loans over the last six years went to borrowers with FICO scores above 750, which shows that lending standards have clearly remained conservative across the nation.
As a result, some worthy buyers are getting shut out.
Barzilay said it could be possible that lending standards will be relaxed in the near future, allowing some of these reasonably credit qualified people to enter the market.
The fifth and final area to watch in 2018 is mortgage interest rates.
Most real estate industry analysts believe rates will increase in 2018 as the Federal Reserve continues to tighten monetary policy and implements the plan to reduce its balance sheet.
“Interestingly, mortgage rates have floated in a pretty tight range since 2011,” Barzilay noted.
However, it will take years for the Federal Reserve to fully implement its policy, and we don’t foresee any major impact to the housing industry resulting from the Fed policy change.
Ultimately, Barzilay noted that it is virtually impossible to predict the future, but it is possible to make an educated guess about the real estate market in 2018. Knowing the trends that will be vital to your clients is key to your success in the New Year.