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The US property market in 2018

The US property market in 2018

2017 has undoubtedly been an excellent year for the US property market. With under three months to go, predictions are already coming in for 2018. Freddie Mac’s latest economic outlook makes good reading for US investors as it points to more of the same.

 

The Economic & Housing Research Outlook, published in September, offers insight into the US housing market next year. Taking into account the economic situation, house price performance and mortgage trends, Freddie Mac paints a positive picture for the US property market in 2018.

 

Good economic scenario

The report first turns its attention to the US economic situation. It points out that the country has enjoyed “moderate economic growth and solid job gains” over the last two years. Freddie Mac forecasts more of the same in 2018.

 

Specifically, the federal mortgage corporation predicts economic growth of 2.2% in 2018. This figure would mirror this year’s performance and outpace the 1.8% registered in 2016. Freddie Mac expects the job market to behave in a similar fashion with the 4.5% forecast for next year equal to this year’s rate.

 

Inflation forecasts rise slightly for 2018, however. The 1.8% rate of inflation seen in both 2016 and 2017 would increase to 2.4% next year.

 

US property market trends

The report looks specifically at three trends within the property market: home sales, inventory levels and house prices. For 2018, Freddie Mac forecasts a small rise in sales, lower property supplies and a continued increase in prices.

 

2017 has registered the highest year-to-date home sales since 2007. However, the shortage of inventory is likely to curtail this trend to some extent during 2018. According to Freddie Mac, “limited inventory will remain a persistent problem”. In September, there were some 1.88 million properties on the market in the US. The figure represents a year-on-year drop of 6.5%.

 

New-home starts

The report believes that home sales will be driven by new homes next year. The single-family home construction will be particularly important within the sector. Housing starts this year should number 1.22 million by the end of December, marginally ahead of 1.17 million last year.

 

Freddie Mac forecasts that 1.33 million home starts will take place in 2018. In total, sales within the US property market should rise by 2%.

 

House prices

“Home price appreciation has been quite strong” this year, according to the report. The medium price for properties rose by 6.6% in the year to Q2 2017. However, the price hike reaches double figures in some areas of the US property market. Freddie Mac quotes the example of Seattle where prices in the metro area went up by over 15%.

 

They expect more moderate growth in prices in 2018. The twin effects of more new construction and slight rise in mortgage rates should curtail price hikes very slightly. All in all, Freddie Mac forecast price rises of 4.9% on average in 2018.

 

Mortgages in 2018

Mortgages constitute a key factor in all property markets and the US is no exception. The general consensus is for interest rates to rise slightly in 2018. The fixed mortgage rate in 2017 stood at 4%, a figure that may rise to 4.4% next year.

 

Despite interest rate rises, Freddie Mac expects a higher volume of mortgages in the US. The increase is, in fact, one of the entity’s highlighted trends for the US property market in 2018. Higher house prices partly explain this expected tendency along with the slight increase in sales.

 

(Source: Freddie Mac)

 

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