Housing Expectations for 2018

As we move through this new year in 2018, coming off of another strong year in housing, we continue on our never-ending pursuit of understanding the housing market, and trying to predict what will happen moving forward. In the last couple years, we’ve seen the housing market show strong growth coming off the extended downturn following the recession. We expect this trend to continue in 2018, growing at a strong, yet cautiously healthy rate. 

After the immense drop-off at the end of the last decade, housing stats are now closer to what we would consider a healthy rate of an estimated new build of roughly 1.2 million in 2017.  Forecasters predict a slight uptick this year sustaining the growth. Unlike the explosion of new home-building in the early 2000’s, builders are being slightly more cautious in their investments, yet still feel confident about where the current conditions lie. According to the Wells Fargo/NAHB Housing Market Index, builders have not felt as confident about the current state of the housing market since before the recession. The difference this time, while they are confident, they are not building at an irresponsibly fast rate.

While it is good to see healthy growth on the home-building side, the interest in purchasing homes has grown at a faster rate, and has depleted the supply of housing over the last few years. 2017 was particularly hard, with existing home supply falling to roughly 3.5 months supply, well below the five to seven months that is considered healthy for good housing stock turnover. The steadily dropping supply has been a boon for current homeowners as it has led to a steady increase in their home value, but the rising prices have made the entry point into the housing market higher for many prospective purchasers. Even with new home-building increasing, building up inventory is a slow process. We do not expect inventory to bounce back drastically in the near future and expect prices to continue to rise, though possibly not as fast as they have this last year.

Some of this new demand is coming from a group many have pointed to as a reason we’ve seen the homeownership rate drop in recent years: Millennials. After years of decline in homeownership rates of those under 35, we saw a slight uptick in 2017, coincidentally the same time we’ve seen an overall gain in wages among non-executive workers.  This lends credence to the idea that, contrary to what many people have said in the past, Millennials in fact have the same aspirations as those that came before them, yet their path has been slightly delayed thanks to cultural shifts and economic circumstances. This has led to a halt in the drop in homeownership rates overall in the last year, even showing a slight uptick in rates during 2017. This is good news for the housing and home remodeling market, and if wages continue to rise, along with the temporary tax cuts for the middle class, we will likely see that tick up some more in 2018.

With all of the underlying indicators we have seen over the last couple years, we are optimistic that the housing market will continue its path to healthy growth. The foundations for this growth are much stronger than what we saw in the last housing bubble, and even in today’s ever-changing environment, the outlook is strong for this year.

Written by: Matt Craig.  mcraig@thefarnsworthgroup.com