We had previously written about new trends in real estate. Below, we take a closer look at the housing market in general, including implications for buyers and sellers in 2018.
Housing prices on the rise
Since the 2008 recession, housing prices have been rising. These higher prices are driven by low supply and increasing demand. This year, shrinking demand is particularly responsible for higher prices. According to Zillow, this trend will only continue, and 2018 will be a hotter year for real estate than 2017.
Due to the increase in prices, buyers are less confident that now is a good time to purchase a home. Rising prices also mean that buyers, particularly first-time buyers, have to set aside more money than they would in the past just to make a down payment. Not only that, but shrinking demand means that buyers have to act faster to purchase a home. Meanwhile, sellers are more confident that now is a good time to sell, and are more likely to put houses on the market.
Different geographic areas
The rise in housing prices is not consistent across the U.S. Certain West Coast markets have seen the biggest gains. For example, Zillow reports that San Jose and Seattle have both seen large gains in median house prices. In fact, San Jose has the most competitive housing market in the US, due largely to the tech boom in the area, with 83.2% of homes being sold above listing price. Nearby, San Francisco and Oakland rank second and third most competitive, respectively.
Other hot areas to watch in 2018 include Las Vegas, Nevada; Dallas, Texas; and Stockton, California.
The luxury market
Despite the overall rise in prices, one area that has not seen the same kind of gains is luxury homes. According to Forbes, the high end of the housing market has been slowing down due to decreased demand. The slowdown in luxury housing is reflected in the length of time that these expensive homes stay on the market, which has been increasing since 2016. Wealthy buyers are more risk-averse, and also have the option to be both patient and selective when buying. The new tax plan has also thrown some of these consumers into uncertainty.
Conversely, lower-valued homes nationwide are experiencing the largest increases in value. Decreasing supply has been concentrated at the low end of the market. Zillow reports that housing prices on the low end have thus had annual appreciation that’s more than double on the high end, 8.4% compared to 3.7%. This is lucrative for homeowners and sellers on the low end, but difficult for buyers.
Are we in a bubble?
Many are worried that the U.S. real estate market is a bubble, and will crash like it did a decade ago. However, it’s hard to say for sure what the reality is. The shortage of inventory means that prices are rising at double the rate of a “normal” market. Some warn that investors are overconfident, which could be a sign of an impending bubble burst.
That said, a crash may not be imminent. For one, there is not the same kind of rampant speculation as happened before the 2008 recession. Likewise, between early 2000 and late 2006, the percentage of overvalued homes jumped from 6% to 67%. Between early 2011 and late 2017, the overvalued percentage only increased from 7% to 33%. These signs are ground for optimism even with the rapid increase in housing prices.
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