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5 economic experts from the real estate sector weigh in on what the coming year may bring

January 22, 2018 | By

The housing market recorded another strong year in 2017, with overall positive numbers for both sellers and buyers.

Sellers saw boosts in sale prices, with a median sales price of $248,000 up 5.8 percent from 2016. For buyers, conditions remained favorable, with interest rates remaining low, unemployment dropping, and the stock market soaring.

And consumer confidence is generally good: according to Fannie Mae’s Home Purchase Sentiment Index, 58 percent of consumers believe now is a good time to buy, and 62 percent of consumers think it’s a good time to sell.

So now, we wonder, what will 2018 bring? We checked in with five real estate economists, including several who commented last year, asking them how last year’s prediction panned out–and what they see coming ’round the bend for 2018.

Millennials move inevitably toward home formation.

Kim Betancourt, Director of Economics and Multifamily Market Research, Multifamily Mortgage Business, Fannie Mae

Last year Kim Betancourt told us she expected rental demand to slow somewhat from its 3 percent increase in 2016 to 2.5 percent in 2017. In fact, though, demand was stable in 2017 as reflected in rent growth of 3 percent.

As for 2018, “we still have an awful lot of new supply coming on line,” says Betancourt. “About 400,000 new units came on line this year and another 400,000 units next year – that’s a lot of units. So, we expect continued growth of 3 percent again for this year.”

A lot depends, she says, on whether tax reform stimulates the economy as it’s being planned. If so, that will result in more jobs, which will lead to more demand in the coming year.

But Betancourt has thoughts on a longer view. “Here’s the thing: Millennials are continuing to age. They’re moving into the 30 to 34 cohort. Home ownership for this segment has been delayed, but it’s not denied. I think it’s going to come. Millennials will want to own a home someday. If that occurs, what happens to all this rental supply that’s being built for them?”

Will we see this over-supply of rentals next year? Betancourt says no – but it’s something for the sector to keep in mind.

Builders are hopping to it, and sales and prices will grow.

Douglas G. Duncan, Senior Vice President and Chief Economist, Fannie Mae

Doug Duncan’s outlook last year was pretty accurate – sales did flatten a bit, which was partly a function of lack of supply, and interest rates were a little higher by the end of the year, as expected. For 2018, Duncan says it’s a bit of a wild card how the economy will react to the tax cut just passed by Congress, but he ventures that “baseline growth will be stronger than it would’ve been, absent the tax cut.”

Duncan also expects housing prices “will continue to grind upward, and this year will be stronger in terms of sales.” An important trend to note: Builders report they are adding to their workforces. “This should accelerate the pace of supply growth, closing the inventory gap to some degree.”

However, he believes it likely that income growth will probably not come near the pace of house price growth. “This means that supply shortages (except in the luxury segment) will still be the driving issue.”

Inventory is the biggest challenge.

Skylar Olsen, Senior Economist, Zillow

“In 2018 low inventory will continue to be a major theme driving the market forward,” says Skylar Olsen, senior economist at Zillow. “Low inventory begets low inventory. People will choose to remodel rather than selling and trying to find the next perfect home that won’t be there.” In other words, low inventory is a self-reinforcing cycle.

Where there has been some added supply, though not a lot, is new construction on the higher end. “But even homes on the higher end have slowed down,” Olsen says. “Entry-level homes are appreciating the fastest. Builders are going to find that hard to ignore.” Olsen points out that over the next several years, there will be more people entering their 30s. “That means every year there will be more young adults buying a home, so that’s where all the demand will be heading.”

For this growing segment of the market Olsen believes builders will be challenged to change their strategies to meet the new demand – but it won’t be easy for them. “Builders face nontrivial barriers of land, labor, and lumber,” (“lumber” meaning all sorts of materials, especially those conflated with the rising costs of oil). “Plus, the costs brought on by regulations and zoning–costs that make it difficult to build an affordable product.”

A migration toward the middle.

 Nela Richardson, Chief Economist, Redfin

Richardson’s forecast last year that 2017 sales would be even stronger than 2016 was a bit off, but with good reason: “We didn’t anticipate the weather events – the hurricanes and the California fires – that slowed sales these last three months. Year 2017 will end up level with 2016, and the delayed sales will be pushed into 2018.”

That’s one reason Richardson believes 2018 will be stronger. Also, “the strong economy and dirt-cheap interest rates will be a net benefit to sales.”

Other movements Richardson is watching: “We have been looking at a trend of people on the coasts moving inland – people from California and New York moving to Atlanta, Denver, and Nashville. We think the tax policy changes will intensify that trend, as people will consider moving to a place where they get more bang for their buck.”

Finally, a trend over the longer term is the Millennial preference to live in a “walkable” community – the rise of the “urban suburbs,” where people have the best of both worlds. Richardson expects Millennials will trade off the Boomer fondness for a McMansion on a large lot for more dense, urban living “where you can walk to get a coffee and still have highly ranked schools and shorter commutes.”

All that rises must eventually fall.

Javier Vivas, Director of Economic research,

Economists at project sales growth to increase 2.5 percent year over year in 2018, which constitutes a bump, compared to this year’s growth. They also expect to see a rise in prices of 3.2 percent year over year, which, though an increase, is slower than the last two years, when prices grew at 5 to 6 percent.

The reason for the slowing of price increases: “The market the last two years has taken prices to record levels,” says Javier Vivas.

“These are unsustainable levels of growth, so this is the natural deceleration of prices we expect will follow.”

But the volume of sales will increase, due to two factors: more new construction; and more houses in the higher, luxury tiers coming down in price. “Healthy construction levels, particularly in the South, should provide more options for buyers and translate into increased sales,” says Vivas. “Construction is important for the mid-market–this is where we think the growth will happen.”


Estimates, forecasts and other views expressed in this article should not be construed as indicating Fannie Mae’s expected results, are based on a number of assumptions and may change without notice. How this information affects Fannie Mae will depend on many factors. Neither Fannie Mae nor its Economic & Strategic Research (ESR) Group guarantees that the information in this article is accurate, current or suitable for any particular purpose. Changes in the assumptions or underlying information could produce materially different results. The ESR Group’s views expressed in this article speak only as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.


Beth Franken is a freelance writer based in Chicago who writes about real estate, entertainment, and the arts. Her stories have appeared in the Chicago Tribune,, National Association of Realtors® Magazine, the San Jose Mercury News, and other publications.






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