What a year that was. Admit it—some years are less memorable, but not so for 2017. We had the greatest seller’s market ever and then the lowest home inventory in what seems to be forever. Interest rates remained low but are now rising, and refinancing plummeted as expected. We had a Seattle housing bubble. On one side of the country, we had devastating hurricanes. So, what’s next for 2018?
Here are my Top 5 Housing Predictions for 2018.
A Rise in Cash-Out Refinance
We cannot discuss the housing market without first addressing where interest rates are headed. Low interest rates have fueled buying, kept inventory low, and likely even helped speed up housing recovery in Miami and Houston after their 2017 hurricanes. Interest rates will continue to rise in 2018, but not high enough to deter interested homebuyers from pursuing their American Dream.
Refinance will not return to its banner-year form of 2016, but we should all keep an eye on a potential rise in cash-out refinance. Americans’ home equity wealth is now at an all-time high. We are also seeing the rise of all-cash purchases, a high rate of home purchase co-borrowers, and increased buying assistance from family. As home prices become even higher—and overvalued, according to CoreLogic—expect to see more parents cash out their home equity to help their adult children begin building their own housing wealth. This is, however, not done without risks. Until they sell their home, these cash-out refinance borrowers are playing with money on paper, and they too should keep an eye out for overvalued market reports.
Return to Services
In the age of enhanced digitization and automation, this may sound counter-intuitive. But remember when everyone declared the death of TV not too long ago? With higher home prices come greater risks and more compromises for homebuyers, who will become ever more reliant on experienced and informed housing professionals to make buying and mortgage decisions. Mortgage rates will continue to become a commodity; homebuyers have access to rates on their devices and know mortgage brokers are quoting from the same rate sheets. As homebuyers evaluate their partners, they should look for realtors and mortgage professionals who offer value that protects their clients’ bottom line. Housing professionals who deliver this will be ones who can truly stand out and have longevity in this ever more crowded market.
Advancement in Housing Fintech
Expect technology to continue to make breakthroughs in housing. The proliferation of information has made everyday consumers more demanding of progress and fairness, which is a good thing. They demand more competition for their business and stronger customer empowerment. New housing financial technology will not just be about faster search results or more photos, it will be expected to serve up more homebuyer protection. In 2018, homebuyers will increasingly question why they could sell a home at a loss when realtors still collect their brokerage fees. When they see a pre-closing statement listing fees paid to protect their lenders, they would demand to see the calculation of risks and returns designed to protect their purchase. Getting ahead of these questions and demands will become table stakes in the advancement of housing financial technology.
Millennials May Continue to Prolong Homeownership
Americans—including millennials—want to own homes; we knew this already. However, millennials may want other things in life more than homeownership, or they don’t want to be “house poor.” Affordability is the top barrier to home buying, no doubt. However, there are increasing indications that millennials are not pulling out all the stops to buy a home even if they could afford one.
In ValueInsured’s latest Modern Homebuyer Survey, more than one in three millennials (36 percent) who want to buy a home say they are delaying buying in order to keep their options open. Nearly half (47 percent) of millennials also say they worry their job future is uncertain and want to figure that out first. Instead of paying high home prices, millennials have proven unafraid to give up buying and go back to renting. A generation known for defying conventions and expectations may change the housing market forever in 2018 if they say enough to high home prices and decide to do their own thing (for example, keeping roommates after they marry, which seems to be already happening).
The Next Seattle or San Jose
In the future, scorching-hot real estate markets will give rise to more calm and cool emerging markets. The next big thing in 2018 and beyond could be Provo, Utah, then Athens, Ohio, or Aberdeen, South Dakota. More Americans—not fewer—will telecommute to their jobs or shop from their devices instead of at malls. This is simply a fact of life. As real estate prices and commercial rents increase, more Asian fusion restaurants, CrossFit studios, and organic microbreweries will open in previously “B” or “C” designated counties. Once upon a time, Portland, Oregon, and Chattanooga, Tennessee, were seen as hidden real estate gems, and now they are cities millennials are leaving behind in search of more affordable homes. Millennials’ tendencies to be nomadic and to reject established institutions (or markets), and their sophistication in forming their own community, could prove to be very interesting in challenging traditional housing cycles and expectations.