Key Takeaways

• It is important to understand that nobody can predict the housing market without exhibiting at least some room for error.
• The cost of homeownership should go up, as interest rates are expected to rise and inventory remains tight.
• Generation Z may get its first official glimpse of what it means to participate in the housing market.

With 2017 nearly in the books, now is just as good of a time as any to take a crack at the 2018 housing market forecast. And while predicting exactly what will happen in the coming year is nothing more than a fool’s errand, it can be incredibly valuable to make educated guesses on current trends, and how they are expected to carry over into January and beyond. You see, I am not going to sit here and tell you what will happen in 2018, but rather present you with the facts and suggest what is most likely to happen.

Nobody can predict the future, and you are only fooling yourself if you think you can, but it’s entirely possible to prepare for what’s in store by understanding where we came from. If you are interested in giving yourself an advantage over the next twelve months, I highly recommend taking a look at what transpired in 2017. Only then will you have enough data to identify viable trends that should carry over into the new year. If you can’t identify any trends on your own, feel free to take a look at what we found, and how it will impact the 2018 housing market forecast.

Real Estate Market Forecast

Again, nobody knows exactly what the 2018 housing market forecast has in store for us, but it can’t hurt to make a few guess, especially if they are founded on sound data. Below you will find a list of four scenarios I believe will play out more than likely in the 2018 housing market forecast.

1. Prices Will Continue To Increase

Industry professionals and pundits alike aren’t hesitant to suggest that prices will continue to rise for the better part of 2018, and I am inclined to agree with them. As recently as November, the median home value in the United States was $203,400, but there’s no way we don’t see that number climb. In the last year alone, United States home values jumped as much as 6.5 percent, and the same lack of inventory that motivated increases over the last 12 months should continue to push prices higher, albeit at a slower pace. Inventory will remain tight in 2018, but new homes are expected to hit the market and chip away at the problem. As a result, I would expect prices to increase, but not at the rate we saw in 2017. The powers that be at Zillow have forecasted a three percent increase, and I see no reason to think otherwise.

2. Builders Will Look To The Future

There’s no doubt about it: there is an inherent lack of inventory preventing the U.S. housing market from reaching its full potential; for as far as its come since the depths of the recession, it could be a lot further along if supply could keep up with demand. That said, demand doesn’t seem to be tapering in the slightest, and builders are starting to take action. Select cities, like New York for example, have already started addressing the inventory issue, or lack thereof. However, inventory levels need to be addressed across the whole country, and I am confident builders will do so in the coming year. What’s more, I expect new projects to consist largely of entry-level homes. That way, more Millennials that have been waiting on the sidelines to buy will be able to actively participate in the housing sector, effectively bringing down home prices.

3. Millennials Will Receive Help

Millennials have been touted as the saviors of the housing market for the better part of a decade. At the very least, those born between 1981 and 1997 were expected to step up and actively participate in the housing market in a meaningful way, all while serving as the catalyst for a greater recovery. And while we have seen a great deal of Millennials take advantage of relatively favorable economic conditions, the housing market has yet to see Millennial participation reach what we expected. That said, it doesn’t look like Millennials will have to bear the cross of saving the housing market all on their own anymore. While the housing market would benefit from more Millennial participation, I would expect Generation Z (those born between the mid-1990s and the mid-2000s) to inherit a larger responsibility.

Think about it: Millennials are no longer the youngest generation capable of buying homes. Those born in the mid-90s could be as old as twenty-three — old enough to buy a home if you play your cards right. If for nothing else, 2018 could be the year we start to see the first purchases from Generation Z. At the very least, they will contribute heavily to the renter pool.

4. Mortgage Rates Could Rise

Predicting exactly what mortgage rates will do is a fool’s errand. On two separate occasions in 2017, the Fed led us to believe interest rates would increase slightly, only to do nothing with them. That said, if the Fed doesn’t know what’s going to happen, how can anyone else? So instead of predicting exactly where the benchmark interest rate will be by the end of next year, I’d like to take an educated guess. The general consensus is that rates will increase, and I am inclined to agree. It is worth noting, however, that I don’t expect rates to increase too much. The system is still fragile, and a brash increase could cause a lot more harm than good. I, therefore, see no reason to think the benchmark won’t raise slightly over the course of next year.

Robert Johnson, president/CEO of The American College of Financial Services, says rates should jump up a notch or two over the next year. “The Federal Reserve is expected to pursue a more restrictive monetary policy,” says Johnson.

“And, according to the CME’s FedWatch Tool, by June 2018 there is a 79 percent probability that the target Fed Funds rate will be at least 50 basis points (0.50 percent) higher than today. By November, there’s an 89 percent chance that rates will be at least 50 basis points higher than now.”

These numbers are, of course, expectations, and are by no means to be confused with what will happen. I simply what you to be comfortable with the idea that interest rates will probably rise.

What Does The Future Hold

I want to make it abundantly clear: this 2018 housing market forecast is in no way an indicator as to what will happen in the coming year, but rather a look into the most likely scenarios. The housing market is founded on too many fundamental principles for anyone to accurately predict it without any room for error. That said, it’s not a bad idea to prepare for the coming year by making educated guesses. At the very least, it’s those that have some semblance of an idea of what to expect that will have an advantage over the competition.