CHICAGO – The National Association of Realtors (NAR) forecasts a 5 percent rise in median home prices next year, a gradual increase in mortgage rates to about 4.5 percent from roughly 4 percent today, and a 13.9 percent jump in new home sales to 690,000, according to the association’s annual outlook.
Delivering the forecast at the Realtors Conference & Expo in Chicago, NAR Chief Economist Lawrence Yun warned that these projections were prepared before the House Ways and Means Committee released a draft tax overhaul that would effectively halve the mortgage interest deduction and cap state and local tax deductions. Under the current rules, mortgage interest on loans up to $1 million is deductible for married couples; the proposal would reduce that benefit by 50 percent and limit state and local property tax deductions to $10,000.
Yun said the broader U.S. economic recovery—steady job growth and rising consumer confidence that buying a home is a good decision—should support stronger existing-home sales in 2018. At the same time, he noted potential headwinds: regional market weaknesses and possible tax changes that, according to Realtors, could discourage homeownership and restrain what could otherwise be more robust activity.
NAR’s forecast projects existing-home sales will rise 3.7 percent to 5.67 million in 2018. Yun’s baseline estimate anticipates sales finishing at 5.47 million, the strongest pace since 2006 but only a modest 0.4 percent increase over the current year.
He cautioned that some indicators already point to softening in the national residential market. Prices remain resilient overall, but several markets face a serious shortage of available homes. “Right now there’s about a four-month supply of homes; a balanced market typically has about six months,” Yun said. He cited Dallas and Austin as examples of constrained inventory, noting that Austin has under a two-month supply in some segments.
Research from NAR shows homeowners are staying in place longer—an average of 10 years versus about six years in the past. That trend contributes to low turnover and raises concerns among potential movers who fear selling a current home without finding a suitable replacement.
Affordability remains a key obstacle to expanding homeownership. Since 2011, incomes have risen about 15 percent while home prices have climbed roughly 48 percent, Yun said, putting ownership out of reach for many and discouraging would-be buyers. “It’s demoralizing for renters,” he added. “Affordability is getting out of hand.”
To ease supply pressures and improve affordability, Yun urged increased construction. “We need home builders to produce more homes,” he said.
On interest rates, Yun expects mortgage costs to rise next year. He noted President Donald Trump’s nomination of Jerome H. Powell to chair the Federal Reserve and observed that Powell, a Fed governor since 2012, has generally supported the Fed’s gradual rate-hiking approach. “We’ll have to see what Powell’s view will be,” Yun said. “As it stands, he’ll probably follow what (current chair) Janet Yellen would do but a little more aggressively.”
Following two consecutive quarters of roughly 3 percent growth, Yun projects GDP growth near 2.2 percent for the current year and about 2.7 percent in 2018, provided job expansion continues and residential construction accelerates.
Nov. 3, 2017 Realty News Report Copyright 2017