What Is the Outlook for the Real Estate Market in 2018?

For several years, economic growth has been moderate, specifically about 2% each year. Mortgage interest rates, on the other hand, have been low. But job creations are going strong.

If the same economic environment remains the same, real estate and the mortgage market is likely to have minimal changes. But there are many factors in play that lead to different predictions.

In September 2017, the 30-year PMMS is at 4%, the total home sales at $6.18 million, the growth of house prices at 6.3%, and the total originations at $1.8 billion.

After the forecasts below, these numbers can either go up or down. Be sure to read to the end.

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Outlook of the Mortgage Market in 2018

1. Increased purchase mortgage volume. This is driven by the modest increase in home sales and the growth of house prices. Total home sales to date are the highest since 2007 but the existing home sales would not increase much going forward. This is due to the aging population and the decline in mobility that keep residents in the same home in the long term.

This means that growth in home sales will be driven by new home purchases rather than existing ones. Many predict that the sum of existing and new home sales from 2017 to 2018 will increase by about 2%.

2. More purchase-oriented market. From a refinance-dominated market, many mortgage activities are shifting towards a purchase-oriented market. This is why a 25% decline in annual refinance share is forecasted to happen, which will be the lowest since 1990.

3. Spikes in mortgage rates will also fuel this decline. As history showed, any spike in the mortgage rate will result in refinance activity cooling off. The mortgage interest rate in the fourth quarter of 1993 to the 4th quarter of 1994, for example, increased by about two percentage points on the 30-year fixed rate mortgage. This resulted in a decline of the refinance activity over 80%.

4. More borrowers will tap into home equity. The increase in home prices would mean home equity will also increase for existing homeowners. They can then use it to pay for home improvement or consolidate other debts.

In the first quarter 2017, homeowner equity increased to $13.7 trillion. As the rise of home prices continue, cash-out activity will also increase.

Outlook of Housing for 2018

5. According to the Freddie Mac’s September Outlook report, new homes will be the “primary driver of sales in 2018”. The report, which gauges future real estate activity, also predicts that next year’s housing will start at 1.33 million, a figure higher than 2017’s 1.22 million.

6. Home prices in 2018 are predicted to increase by 4.9% which is actually lower than this year’s 6.3% growth.

Outlook of Other Areas That Will Affect Real Estate in 2018

7. By the end of 2017, President Donald Trump will sign the tax reform legislation that will take away homeownership bennies. By next year, however, it is predicted that Congress will amend the legislation and will give back what was taken in the original bill.

8. Zillow will emerge victorious from the squabble over StreetEasy data because brokers in New York will realize that their clients just want their listing on StreetEasy, regardless of the politics going around.

9. There will be regulatory sniffing around Zillow’s Premier Agent ad placement program but the efforts will go nowhere.

10. Google, Facebook, and eBay will expand its reach to real estate and bring more business to their tables through acquisitions and investments. This goes to show how irresistible the opportunities in real estate are to big players in other industries.

Despite political uncertainty, the economy will not slow down. In fact, it will grow like crazy. Along with it is the housing market.

So what will happen with the September 2017 figures listed above?

  • 30-year PMMS will increase to 4.4%
  • Total home sales will increase to $6.3 million
  • How price growth will drop to 4.9%
  • Total originations will drop to $1.7 billion.


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