Though existing home sales are poised for a comeback in 2018, a few hurdles stand in their way. According to Lawrence Yun, an industry-leading economist, continuing inventory shortages and the GOP’s latest tax bill are prime among them.
Yun, Chief Economist for the National Association of Realtors (NAR), told audiences at the 2017 REALTORS Conference & Expo on Friday that existing home sales should jump about 3.7 percent next year, hitting just under 5.67 million. The median existing home price is forecasted to rise even further–about 5.5 percent, Yun said.
Still, positive indicators aside, according to Yun a number of things could hold the market back in 2018–namely, the tax bill released by the House Ways and Means Committee on Thursday. According to NAR’s analysis, the bill could drive home values down by as much as 10 percent, while also raising taxes on existing homeowners by more than $800 annually.
However, according to Mark Calabria, Chief Economist for Vice President Mike Pence aspects of the tax plan will promote, rather than deter, homeownership. "Likely when you do the real analysis, the full analysis, a holistic analysis, the changes on the individual side will be pro-homeownership and pro-housing rather than claims to the contrary," said Calabria at the 5th Annual Housing Finance Symposium hosted by the Urban Institute Housing Finance Policy Center and CoreLogic.
“The ability to deduct interest is a component that allows you to buy a bigger house, not what drives you to buy a house,” added White House Economic Adviser Gary Cohn on Bloomberg Television.
Besides tax reform, Yun also cited inventory as an ongoing problem, with lagging new construction offering the biggest challenge. Yun forecasts single-family housing starts to increase by 9.4 percent in 2018, though the 950,000 new homes expected to hit the market will still clock in well below the 50-year average (1.2 million per year).
Affordability constraints will also hinder buyers, particularly in areas with strong job growth and skyrocketing home prices, like Los Angeles and San Francisco.
"The lack of inventory has pushed up home prices by 48 percent from the low point in 2011, while wage growth over the same period has been only 15 percent," Yun said. "Despite improving confidence this year from renters that now is a good time to buy a home, the inability for them to do so is causing them to miss out on the significant wealth gains that homeowners have benefitted from through rising home values."
According to Yun though, there’s still hope for renters who dream of homeownership.
"An overwhelming majority of renters want to own a home in the future and believe it is part of their American Dream," he said. "Assuming there are no changes to the tax code that hurt homeownership, the gradually expanding economy and continued job creation should set the stage for a more meaningful increase in home sales in 2018."