DEAR MR. MYERS: Home sales and prices in our neighborhood have been going up steadily for the past few years. Will the housing market stay hot in 2018?
ANSWER: The upcoming year should be another good one for the nation’s housing market, though not quite as good as we saw in 2017 and 2016. A consensus of six economists I interviewed suggests that nationwide, prices should climb about 3 or 3.5 percent in 2018, which is well ahead of an expected overall inflation rate of about 2 percent but about half the price gains that we’ve seen this year.
With New Year’s Eve just a week away, it’s time to dedicate this entire column to answering some common questions from buyers, sellers and current homeowners about how the housing market will fare over the next 12 months.
DEAR MR. MYERS: Why do you think prices won’t go up very much next year?
ANSWER: Let’s not get greedy. A 3 to 4 percent gain in home prices in 2018 would be quite respectable. Not only would it outpace the overall inflation rate, but it also would be more than twice the amount you could get by putting your money in a bank certificate of deposit.
DEAR MR. MYERS: The market in our community is still red-hot, with prices going up maybe 10 percent a year. So, why do you think that we can’t do it again?
ANSWER: There are lots of reasons. As home-prices keep rising, there are fewer people who are able to afford to buy a home. Ironically, that trend slowly shifts power back to the buyers who can qualify for a mortgage.
The gradual shift from a “sellers’ market” into to a “buyers’ market” probably won’t begin until mid-year, said Javier Vivas, an economist and director of research for the National Association of Realtors. Sales of existing homes next year should rise about 2.5 percent, Vivas said, to a healthy 5.6 million.
DEAR MR. MYERS: Where are interest rates headed?
ANSWER: They’re likely to rise as the economy continues its slow but steady growth, which is another reason why nationwide price gains will stay in the 3 to 4 percent range.
Vivas believes that rates on 30-year fixed-rate mortgages, which currently are at four percent, will average 4.6 percent in the months to come, but will hit 5 percent by the end of 2018. An increase to 5 percent from today’s 4-percent level would add $119 to the monthly payments on a new, 30-year loan for $200,000.
DEAR MR. MYERS: Which part of the country will see the biggest gains?
ANSWER: Most experts say that housing markets in the southern states will do best. From Texas to Florida, efforts to lure businesses and individuals alike to the region have resulted in above-average economic growth and a rise in household formation, two of the most important factors that drive both home sales and prices.
Economist Vivas is particularly bullish on Dallas; Tulsa, Oklahoma.; Little Rock, Arkansas; and Charlotte, North Carolina. Sales in those cities could jump by 6 percent or more in 2018, compared to the expected 2.5 percent nationwide gain.
DEAR MR. MYERS: Our son and daughter are carpenters and work for a big home-building company. They have been working nonstop and have been making lots of money, but will they continue to be busy in 2018?
ANSWER: Probably. A group of economists polled by Kiplinger’s Personal Finance magazine, one of my favorite monthly publications, suggests that overall housing starts likely will climb nearly 6 percent next year. Construction of single-family homes, which doesn’t include apartments and condos, should rise an even stronger 8.2 percent.
DEAR MR. MYERS: How will the plans to reform our nation’s tax code affect the housing market?
ANSWER: That’s the real wild card right now. As of this writing, Congress has passed the Tax Cuts and Jobs Act, which President Donald Trump’s signed on Dec. 22.
The bill would reduce the tax deductions that millions of new buyers and current homeowners can take under today’s tax laws. I’ll write about it in detail after a final package is approved, but researchers for the National Association of Realtors say that some of the more onerous provisions that have been on the negotiating table could send sales plunging - and knock more than 10 percent off the value of a typical U.S. home - if they are eventually signed into law.
David W. Myers’ column is distributed by Cowles Syndicate Inc.