In September of 2017, the average price of a U.S. home reached parity with the price in the summer of 2006, just before the housing market began its collapse. It’s taken a long time to reach that point and some areas remain well short of their peak levels.
According to a report from CoreLogic, home prices in Nevada remain 24% below their 2006 peak, while homes in Connecticut are 16% below the peak and homes in Florida and Arizona are still 17% below the peak.
The past two years have seen appreciation of more than 6% a year in home prices, partly due to a lack of inventory of homes for sale. The forecast for 2018, however, offers some comfort to buyers, particularly first-timers. Javier Vivas, economic research director for Realtor.com comments:
We’ve seen two or three years of what could be considered unsustainable levels of price appreciation, as well as an inventory shortage that resulted in a record-low number of homes for sale across the country. When you factor those together, you have a market that has to either explode or see some relief.
Couple what’s happening with home prices and housing inventory with low unemployment and high levels of consumer confidence, and this could be a good year for home buyers. Here are three reasons the experts at Realtor.com think so.
Interest rates are going up. The most prevalent mortgage interest rate being offered Friday was 4.06% on a 30-year fixed mortgage. With the Federal Reserve planning three quarter-point rate hikes in 2018, the average mortgage rate by the end of the year is expected to rise to around 5% or maybe a little more. At 4%, a 30-year mortgage on $200,000 pencils out to a monthly payment of around $954; the same loan at 5% means a payment of about $1,074 a month. The longer you wait to buy, the more it is likely to cost.
Prices are rising more slowly. Realtor.com’s Vivas forecasts prices to rise by 3.2% year over year in 2018 and existing home prices to rise by 2.5%. A lot depends on where you want to buy, of course, and the biggest increases are expected to come in markets where appreciation has, up to now, been more moderate.
Inventory levels are rising. The good news is that the number of homes for sale this year is forecast to rise. The less-good news is that the increase will come primarily in homes priced around $350,000 and in those priced at $750,000 or more. Higher building costs, for both labor and materials, may prevent builders from constructing lower-priced, entry-level homes.
While the impact of specific changes to U.S. tax laws is expected to fall most heavily on high-end homes, the overall effect lowers the incentive for owning a home and reduces the tax benefit of ownership. Offsetting this is an increase in disposable income when the cuts on individual income kicks in.
See Realtor.com for more details.