U.S. Housing Inventory Crunch to Ease in 2018, Forecast Says

  • More housing supply is expected to hit the market by next fall, though the inventory of starter homes will be slower to improve.
  • The U.S. median home sales price is projected to increase by 3.2 percent in 2018, down from 5.5 percent this year.
  • Home prices in the are projected to increase by a respective 5.14 percent and 4.37 percent in the San Francisco and San Jose metropolitan areas.

More homes should hit the market next year, causing appreciation to slow, although price growth in the Bay Area’s two largest metropolitan areas is projected to outstrip the national rate.

In its 2018 housing market forecast, realtor.com says that inventory should move into positive territory next fall for the first time in three years. The increased supply is projected to initially come at middle and high price points, while entry-level home inventory will take longer to improve.

“Next year will set the stage for a significant inflection point in the housing shortage,” realtor.com Director of Economic Research Javier Vivas said. “Inventory increases will be felt in higher priced segments after [the] spring home buying season, which we expect to take hold and begin to provide relief for buyers and drive sales growth in 2019 and beyond.”

Despite tighter supply conditions for starter homes, the number of millennial homebuyers is expected to increase due to that generation’s significant size. By the end of next year, millennials are projected to account for 43 percent of homebuyers with a mortgage, up from 40 percent this year.

Realtor.com predicts that price growth will moderate as more homes come to market, from 5.5 percent this year to 3.2 percent in 2018. Appreciation in the Bay Area’s two largest metro regions is expected to outpace the nationwide rate, with home prices in the San Francisco-Oakland-Hayward and San Jose-Sunnyvale-Santa Clara metro areas to grow by a respective 5.14 percent and 4.37 percent.

Those projections are similar to ones forecast at Pacific Union’s Nov. 15 San Francisco Bay Area Real Estate and Economic Outlook to 2020. Our forecast calls for 4 percent appreciation in both the San Francisco and San Jose metropolitan areas in 2018. (Note that the Pacific Union and realtor.com forecasts define the San Jose and San Francisco metropolitan areas in different ways.)

Both Pacific Union’s outlook and realtor.com’s forecast note the potential impacts of proposed tax changes on the real estate market and how they could negatively affect homebuyers, particularly those in higher-priced areas of the country. For more in-depth context on the implications of the proposed tax changes, read this analysis by Pacific Union Chief Economist Selma Hepp.

To watch the one-hour presentation of Pacific Union’s San Francisco Bay Area Real Estate and Economic Outlook, click here. To watch a presentation of our first-ever forecast for the Los Angeles real estate market, click here.

Shared with permission from the Pacific Union Blog