Is The Housing Market Softening?

Low inventories and strong demand from buyers have kept the housing market hot for many years now, but there are indications that things could change in 2018. Property prices are likely to reach a ceiling of sorts, where buyers will become discouraged and put off from buying at all. Similarly, new tax laws that eliminate some of the tax benefits of home ownership may remove another incentive to buy. Combined, these factors could lead to a cooling of sorts for the hot housing market in the years to come. Some areas like the East Coast and West coast will continue to be seller’s markets, while the shift will be more pronounced in other housing areas as buyers begin to accumulate some bargaining chips. This shift in balance will be seen both in sales figures as well as median home prices. Some experts predict that while the number of homes sold in 2018 might remain consistent with the 2017 numbers, price appreciation will come down to 2% after being 6% in both 2016 and 2017.

Factors making it difficult for the buyers

Demand for homes has been increasing for the past several years, with Millennials giving it a big push. But while demand increases, supply remains tight, as Baby Boomers are staying put in their homes and not selling to move to their retirement homes the way previous generations have. Even investors are not selling their properties as they are enjoying high rents. New home construction has been sluggish as well. But things could change quickly. Rising prices and stagnant wages could make it very difficult for people to think of buying houses, especially if prices continue to rise. Another hurdle in the path of buyers could be increasing mortgage rates that are predicted to reach 5% levels form the present 4%. Combined, these factors will cause lots of potential buyers to stop looking, lessening the demand for housing. Experts predict that there could be a situation in future where there could be more homes on the market than buyers.

Discouraging tax proposals

The final nail in the coffin for the buyers could be the proposed legislation that limits the deductions for property tax at just $10,000. These higher taxes may discourage many individuals sitting on the fence, because it makes home ownership less advantageous. There is also a proposal to cap mortgage interest deductions for homes priced up to $750,000, which will especially deter buyers from buying high-end homes, lowering the demand for these luxury properties and depressing the prices. This is a significant change since luxury homes are already seeing slower growth in home prices compared to other price points. It seems inevitable that a market correction is in the cards, but will that necessarily be a bad thing? Although it will likely take time for stabilization to occur, opening the doors to new buyers will ultimately widen the client market for real estate agents.