2018 Housing Market Forecast

Jason Belangoy
Jason Belangoy
Published on January 18, 2018

Now that the new year is well underway, it’s only natural to assess the pulse of the real estate market.  The economy is doing well across the board — and continuing to grow.  Businesses have approved President Trump’s new tax bill and the stock market is reaching new record highs.  The US Gross Domestic Product (GDP) is high.  Unemployment is at a 17-year low.  Job growth is solid.  Wages are being increased, and everyone knows that CEOs — who tend to view things 2-, 3-, 4- years ahead — won’t increase wages unless they see a promising economy.  Overall, analysts are optimistic that 2018 will be robust.  But what about in the housing industry?  Housing demand is expected to remain strong, which will boost the California housing market for 2018, despite affordability constraints and the shortage of available homes for sale.   Housing market researchers thereby assess that there is no housing bubble in sight.  Read on for further highlights on the outlook for 2018:

Expect a high exodus to California and  and also within California, say 2018 housing market analysts.  Temperature and climate changes across the country have caused folks to eye California as the better residential state, especially southern California.  But the higher prices of northern California will mean an influx into southern California.  While it is true that those already in southern California might find that the high cost of living compels them to seek housing in other states, that might be offset by homebuyers who want to move into southern California.

It’s a seller’s market out there.  According to market analysts from Redfin, homes will sell faster than they did last year, with the current market rate so far being one in five selling within a week.  What’s more, the California median home price has been forecasted to increase 4.2 percent to $561,000, which is a notable 7.2 percent increase from 2017’s median home price of $538,500, says the California Association of Realtors (C.A.R.).  

Mortgage rates are expected to climb.  The interest rates, based on the 2018 housing market forecasts, shall rise to 4.3 percent or higher for a standard 30-year fixed mortgage loan — which is up from 2017’s 4 percent, and 2016’s 3.6 percent.  When combined with the high demand for housing, that would mean home prices should increase, too, which would push the monthly payment 15 to 20 percent higher as well.

Inventory will continue to be an issue.  Homeownership is shifting dynamically.  Millenials, Gen Y, Gen X, and first-time homebuyers are seeking to purchase homes, but struggle with the financing.  They are competing with seasoned buyers who already have profited from a home sale and have the capital to negotiate.  With fewer homes in the inventory, that makes the 2018 housing market a hungry market — which is not lost on builders who want to feed and satisfy that market with new construction.  Yet, those builders are confronted with high costs as well as density competing with zoning laws and land costs.  That spells an outward expansion into the suburbs for new construction, in addition to increases in the construction of entry-level or starter homes.

Southern California will see an increase in guest homes and accessory dwellings added to their properties.  For those not in the know, there was a recent state law enacted in California that legalized the construction of accessory dwellings and guest houses in residential properties, which makes it easier to build granny flats and in-law cottages (read further at this link here).  Of course, local laws might hinder things, so it is always best to check what are the regulations in your local area.  Nonetheless, current homeowners are remodeling rather than selling — with growing children and grandparents being accommodated by the addition of guest homes within the property.  Extended families in a home property is the trend nowadays.  And there’s been an uptick in demand for guest homes and accessory dwellings so that privacy is maintained to balance the proximity.  With changes in the zoning laws to accommodate these accessory dwelling additions, it’s no wonder homeowners are already taking advantage of these legislation amendments.  These guest homes and accessory dwellings are also a way to earn income, when renting them out.  Other ideas for those guest homes and accessory dwellings include renting out the main house on AirBnB while the homeowner stays in the “caretaker cottage” on the property.  Then, too, these accessory dwellings have likewise been turned into a home office space for remote telecommuters or even recreational cabins (think, man caves).

For more on the rules of constructing guest homes and adding accessory dwellings to your property

Lower homeowner turnover is expected for 2018.  Both Zillow and First Tuesday, in their 2018 housing market reports, have detailed that current homeowners prefer upgrading their current homes to relocating.  That’s due to continued negative equity, delayed retirement, and current trends in extended families living in the same property.  First Tuesday elaborates further by stating that there’s a “chunk of owners” who are “restricted.  These homeowners cannot sell and relocate to purchase another home because their homes are worth less than the debt encumbering them.”  Retirement is thereby delayed to ensure the household income stream.  And, extended families living in the same residence means a pooling of financial resources.

Despite the lower homeowner turnover, there’s still a huge demand by home buyers.  Millenials, Gen Y, and Gen X are now transitioning from being renters to being first-time homebuyers — especially now that many are starting to raise families or simply want to purchase a bigger home.  Then there are always immigrants and foreign investors (especially the Chinese and Canadians) who are buying like mad.  For these reasons, 2018 housing market analysts predict there won’t be any shortage of potential buyers, thus demand for homes will remain very strong.

Homes on the market may sell even faster in 2018, especially for the Greater San Diego Region.  The Pacific Southwest Association of Realtors (PSAR) has documented that the houses in the Greater San Diego Region were only on the market for 20 days back in November 2016, followed by 19 days on the market in October 2017, and then only 17 days in November 2017!

2018 Housing Market Forecast
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