While the temperatures may be freezing across much of the U.S., home prices are predicted to stay hot for much of 2018 – though the overall real estate market will likely cool down.

Here are a few other predictions for the new year.

Home prices will continue to rise.

Sales prices jumped 7 percent annually in November, according to a new report from CoreLogic. The third straight month at that pace, low supply and high demand are fueling the jump – and neither of those is expected to drop anytime soon.

In fact, supply is continuing to fall and a strengthening economy is pushing demand, spurring buyers to get out early this year to get a jump on the spring market as the market’s limited supply is the worst at the lower end, and will hit the growing number of first-time buyers hardest.

Half the homes will be overvalued.

In the nation’s top 50 markets, half of the housing stock is now considered overvalued – where prices are at least 10 percent higher than the long-term, sustainable level – based on market fundamentals like income and employment.

Standard & Poor’s S&P CoreLogic Case-Shiller national home price index climbed 6.2 percent in October while November pending home sales were up annually for the first time since June – with November’s inventory marking the lowest since NAR started tracking inventory in 1999.

New construction will add much-needed inventory.
Residential construction is expected to pick up in 2018 because of a provision in the new tax plan that provides pass-through entities – such as homebuilders – a 20 percent deduction on taxable income.

For real estate companies that are not pass-through entities, the corporate tax rate cut to 21 percent from 35 percent may also help, and may therefore compel builders to hire, increase wages and boost production of single-family homes for sale.

There will be a shift to smaller, entry-level homes.

Builders are predicted to focus on creating entry-level homes, and many have already started to shift their production to target first-time homebuyers or retirees looking to downsize. In fact, since 2014, the average square foot of a single-family house has decreased, as well as the number of buyers looking to upgrade to a bigger or better home.

There will be an – though somewhat indeterminate – impact from tax reform on housing.

Under the tax plan, the deduction for state, local and property taxes will be capped at $10,000 annually starting in 2018. The mortgage interest deduction on primary and secondary residences will be reduced, applying to loans under $750,000, possibly further shifting the demand for slightly smaller houses.

Every new year brings changes, trends and new predictions for the real estate market but one thing remains constant: At DeLeon Sheffield Company, we’re here to guide you seamlessly and painlessly through either buying or selling a home, regardless of market conditions, every step of the way.

Because at DeLeon Sheffield Company, ‘We’re More Than Realty; We’re Family.’