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Housing Market to Remain Bullish in 2018

Tight inventory continued to boost home prices as housing activity remained upbeat towards the end of 2017, according to the Economic and Housing outlook released by Fannie Mae’s Economic & Strategic Research (ESR) Group on Monday.

The monthly forecast, which details interest rate movements, the housing market, mortgage market, and the overall economic climate, noted that total housing starts rose in October to the highest level in a year, even as new home sales approached a decade high. ESR said that existing home sales posted the first back-to-back gains this year, and contract signings to close on existing homes increased for the first time in four months, as sales rebounded from hurricane disruptions.

“The housing market continues its upward grind, as it struggles to balance strong demand and house price appreciation with inventory shortages and affordability concerns,” Doug Duncan, Chief Economist at Fannie Mae, said.

As a percent of real estate value, homeowner equity rose to 58.6 percent, only 1.2 percentage points below the most recent peak at the end of 2005, ESR noted, adding that the yield on 30-year fixed-rate mortgages is expected to average 4 percent this year.

ESR said that, while they had expected shortages of skilled labor and land as factors restraining building activity in their January 2017 forecast, the problem was more severe than anticipated. Compared with the January forecast, ESR overestimated mortgage rates for 2017 by two-tenths. However, their forecast for total home sales came very close to the January prediction, as year-to-date sales showed a 2 percent gain in 2017 over 2016, compared with a forecasted 2.2 percent increase at the beginning of the year.

Considering 2018, ESR expects mortgage rates to rise gradually, averaging 4.2 percent in the fourth quarter of 2018 from 3.9 percent in the current quarter. Total housing starts and total home sales should rise about 5 percent and 3 percent, respectively, in 2018.

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