These Real Estate Trends Will Be Game-Changers in 2018

We’re almost there: the long-awaited home stretch of 2017. And quite a  year it's been! Already, we can’t help imagining what developments next year might bring to the  wild world of U.S. real estate. So we asked our® data team  to give us the inside scoop. The team sifted through historical  real-estate data and other major economic indicators to come up with a  realistic forecast of just what might be in store next year.

And it looks like a sea change is brewing.

From housing inventory to price appreciation to generational and regional shifts, these are the top trends that will shape, and reshape, real estate markets in 2018. Buckle up! It's going to be quite a ride.

Game-changer no. 1: Supply finally catching up with demand

After  three years of a crushing shortage of homes for sale, the  economics team is predicting that the shortfall will finally ease up in  the second half of 2018.

“The majority of the year should be  challenging for most buyers, but we do expect growth in inventory  starting in the fall,” says Danielle Hale, chief economist for

That’s  a potentially transformative development for many would-be buyers  who've been frustrated in their search for a home that meets their  needs—and their budget.

“Once we start to see inventory turn around, there is plenty of demand in the market,” Hale says.

Although  for-sale housing inventory is expected to stay tight in the first  quarter of the year,  reaching a 4% year-over-year decline in March, if  it increases as predicted by fall, that will be the first net inventory  gain since 2015. Markets such as Boston, Detroit, and Nashville—all of which recently made it onto our monthly list of the nation's hottest real estate markets—may see inventory recover first.

Bullish  construction is the engine that’s turning this ship around, bringing  new homes to the market and creating opportunity for people to trade up  into new homes.

“It’s adding inventory instead of just shuffling people around in existing homes,” Hale says.

But those itching to buy a starter home may have to be patient for a while longer.

“We  expect the relief to start in the upper tiers, and it will make its way  down to the lower tiers,” Hale says. Specifically, most of the initial  inventory growth will be in the mid- and upper-tier price ranges,  $350,000 and up.

As the market eases, home prices are expected to  slow to 3.2% growth year over year nationally. But again, it’s the  higher-priced homes that will be appreciating less. And even slower  appreciation still means that prices will continue to rise.

“Overall,  prices are expected to increase, and we’re expecting to see more of  that in lower-priced homes,” Hale says. “It will get a bit worse before  it gets better for buyers of starter and midprice homes.”

Game-changer no. 2: Millennials starting to come into their own

The  housing market in 2018 will continue to present challenges for  millennials—sorry, all of that student loan debt isn’t just going to  disappear—but there are some bright spots on the horizon for these  millions of Americans.

Millennials seem to be having more success  at taking out mortgages on homes at varying prices, and not just starter  homes, Hale says.

“They’re at that point where they’re seeing  their incomes grow, and that will help them take on bigger mortgages,”  she says. That’s because of both the overall strong economy and their  own career development.

And as the largest generation in U.S.  history reaches that sweet spot in their 20s to 30s when they're  settling down and starting families, they're particularly motivated to  buy. Millennials could make up 43% of home buyers taking out a mortgage  by the end of 2018, up from an estimated 40% in 2017, based on mortgage  originations. That 3% uptick could translate into hundreds of thousands  of additional new homes. As inventory starts to rebound in late 2018 and  in years to come, first-time home buyers will likely make up an even  larger share of the market.

They probably shouldn't wait too long  to buy, either—mortgage rates are expected to reach 5% by the end of  2018 due to stronger economic growth, inflationary pressure, and  monetary policy normalization.

Game-changer no. 3: Southern homes selling like crazy

When it comes to home sales growth, bet on Southern cities to beat the national average in 2018. We’re especially looking at you, Tulsa, OK; Little Rock, AR; Dallas; and Charlotte, NC. Those markets are expected to see 6% growth or more, compared with 2.5% nationally.

The  South has been luring corporations and individuals to its balmy  cities with its low costs of real estate, and living in general. The  resulting strong economic growth and strong household growth, combined  with an accommodating attitude toward builders, is setting the stage  for an accelerating boom in homeownership, Hale says.

As soon as there are more homes to sell, these places will be selling strong.

Game-changer no. 4: Tax reform (maybe)

The Republican Party’s proposed changes to the tax system could change everything—but with both the House and Senate versions in limbo, the jury is still out on this one.

If  a version of tax reform does pass with the current provisions affecting  real estate, Hale says she would expect to see fewer home sales and  declining home prices. However, it would be the upper price tiers that  would likely be affected the most, in areas with expensive homes and  high taxes, such as coastal cities, especially in California.