Next year could see an increase in existing home sales due to an improving economy, job growth and rising confidence that now is a good time to buy a home, however it will be limited by continued supply shortages, according to the latest forecast from the National Association of Realtors.
NAR also predicted if the Republican tax bill passes, it could act as a disincentive to homeownership and hold back strong sales activity, according to its residential housing and economic forecast.
NAR explained the new tax bill could affect home sales and even home prices in 2018 and beyond, claiming that in its current form, the bill is a direct tax hike on homeowners. NAR’s analysis of the bill estimates it would cause home values to drop 10% and raise taxes on middle-income earners by an average $815.
NAR predicted 2017 will end with 5.47 million existing home sales, the fastest pace since 6.47 million in 2006. However, this is only 0.4% from 2016’s 5.45 million sales. NAR forecasts home sales will increase 3.7% to 5.67 million in 2018, still the highest point since 2006. The national median home price is expected to increase 5.5% in 2017 and 2018.
“Despite considerable demand all year, pending sales have lost a step in recent months because low supply is pushing prices higher and making home buying less affordable in several parts of the country,” NAR Chief Economist Lawrence Yun said.
First-time homebuyers are having an especially hard time entering the housing market, Yun explained, pointing out first-time buyers made up just 34% of sales over the past year, the fourth-lowest point since NAR’s Profile of Home Buyers and Sellers began in 1981.
“Ownership rates are currently below their peak across the younger age groups and in cities that have seen sharp price increases, and it’s not a good thing,” said Ken Rosen, chairman of Rosen Consulting Group and UC Berkeley’s Fisher Center for Real Estate and Urban Economics.
“A higher rate of homeownership makes sense. It is so important to the financial health of the economy,” Rosen said. “Homeownership helps households accumulate wealth over time, reduces inequality, increases investments in communities and boosts economic growth.”
But the greatest impediment to home sales in 2018 is the ongoing shortage of housing supply, Yun explained. New home construction has been falling behind in recent years, and current homeowners are staying in place for a longer period before selling their home, keeping inventory low from both sides.
“The lack of inventory has pushed up home prices by 48% from the low point in 2011, while wage growth over the same period has been only 15%,” Yun said. “Despite improving confidence this year from renters that now is a good time to buy a home, the inability for them to do so is causing them to miss out on the significant wealth gains that homeowners have benefitted from through rising home values.”