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Overall, the 2018 real estate market is expected to lean in favor of sellers. Buyers will see challenging times, with bidding wars and a congested market. Millennial buyers will continue to increase their share of the market, especially among first-time buyers, and buyers overall will grapple with the implications of the new tax code. Here’s a bit more of the trends buyers and sellers can expect in 2018.
Overall, housing inventory will be remain low at the start of the year, but Realtor.com predicts that it will increase in the fall, leading to “more manageable increases in home prices and a modest acceleration of home sales.” However, this inventory is still not likely to match demand, as home prices are expected to increase about 3% over 2017 prices, which is a smaller increase than we saw last year, but an increase nonetheless.
The 2018 real estate market will see a continued increase in the number of millennial buyers, many of whom are experiencing growing incomes and looking to forego rent payments in favor of buying their first home or apartment. Forecasters at Realtor.com predict that by the end of 2018, millennials may comprise 43% of home buyers taking out mortgages. In addition to low-end mortgages, millennials will also be the recipients of a larger share of middle- and upper-tier mortgages as well.
Under the new tax bill, homeowners won’t experience as many tax benefits for ownership as in the past, which could decrease the number of sales. Prior to the tax bill changes, homeowners could deduct state and local property tax payments from their federal tax returns, but now these deductions (combined with income and sales taxes) will be capped at $10,000, meaning some people will be able to deduct far less than they’re used to. Additionally, the cap on mortgage interest deductions for new mortgages will drop to $750,000. The overall impact of the new tax code on the real estate market will become more clear as time goes on.
The biggest increases in home sales are expected in southern cities. For the following locations, Realtor.com predicts a sales growth of around 6% or more:
Home prices won’t rise as drastically as in years past, with appreciation expected to slow to 3.2% compared with the 5.5% in 2017. Among all homes, entry-level or first-time homes will see the highest price increases.
Beyond the overall trends outlined above, here we are outlining expectations specific to buyers, sellers, and first-time buyers. Feel free to take it all in or jump to the section that applies to you.
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2018 won’t be a good year for residential home buyers, says Kobi Lahav, senior managing director at Mdrn. Residential, a New York City–based brokerage. Some of the main reasons he cites are a shortage of
inventory that will drive prices upward, the large number of well-earning millennials on the market to purchase, and uncertainties around the implications of the new tax code.
Bidding wars are likely, so Lahav recommends working with brokers who have access to off-market inventory in order to avoid pricey bidding wars, particularly in highly competitive markets.
“This will be a sellers market,” Lahav says. “More than ever, technology will be a required resource for home buyers as they will have to get real time information about new listings.”
Since inventory could be low, Wagner recommends that buyers prepare financial documents ahead of time and seek out pre-approval of financing to avoid missing out on good opportunities to buy. Like Lahav, Wagner also expects bidding wars this year.
“Due to the faster moving marketplace, buyers should not expect drastic discounts when initiating purchase offers, and in some cities with the lowest inventory, they should be prepared for the occasional bidding war,” he says. “As long as our national confidence about the economy continues to grow, buyers will face faster-moving inventory in overall tighter markets.”
“It’s important to work with a broker who knows the market and its trends and can properly advise on optimal bidding strategy, inventory and likely changes in it, and the process as a whole,” Leibowitz says.
Sellers should anticipate a competitive market in 2018 that’s fueled by high demand and low inventory. Most cities will see low inventory, which means sellers will see heavy traffic and can price their homes optimistically, though not aspirationally. In general, new listings and choice properties have been seeing larger than usual customer activity, Wagner says.
Even though banks are lending again at levels higher than pre-recession, appraisal regulations are onerous and mortgage approvals based on home value have never been as strict”
He recommends pricing homes at the high end of a realistic price range, and avoiding falling into the trap of fantasy pricing just because there is strong demand. Leibowitz adds to this sentiment, noting that expensive luxury properties with a lot of competition may sit for awhile if priced too ambitiously.
He recommends working with a broker who focuses on presentation and distribution and consistently communicates feedback.
“Staging, virtual staging, and decluttering are some of the tools that should be used to prevent buyers from seeing a unit’s full potential,” Leibowitz says. “Anything that can differentiate a property is exceedingly valuable.”
Lahav says that sellers will be likely to get top rates for their homes and apartments, particularly in strong markets. But he warns against overpricing, instead encouraging people to ask the market rate so as to encourage bidding wars.
While fun, buying a home for the first time can be a challenging and tricky process. First-time home buyers in 2018 should expect a competitive and fast-moving market, and to pay market prices.
Preparation will be crucial in order to seize opportunities as they come along. “[Buyers] should expect to take the necessary time to win bank pre-approval and to prepare supporting financial documents to demonstrate to sellers their ability to close quickly,” Wagner says.
Inventory will be tight for the most part, though people buying high-end luxury homes and apartments are likely to see less competition, he says, “as concerns of over-valued luxury homes contributing to a possible real estate bubble are being heard for the first time in years.”
Lahav suggests first time buyers work with a broker and use technology like Zillow to get a good grasp on the market before heading out to see any properties, because buying will require quick and firm decisions. Staying up-to-date on the implications of the new tax plan is also important.
The new tax plan is taking away some deductions which will affect middle class buyers. They will need to educate themselves with a CPA about the actual cost of holding a property under the new tax plan.”
Leibowitz echoes the need for buyers to be prepared and ready to move on a purchase upon finding something that fits. “Be ready to jump at the right place but don’t feel rushed or pressured,” he says.
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