As we reach the midpoint of 2018, the economy has still been remaining strong with wage growth and an overall improving job market. These positive factors are anticipated to assist home sales and boost prices yet the lower supply and affordability challenges may slow the actual rate of increase.
Chief economist of the National Association of Realtors (NAR), Lawrence Yun, has recently presented his midyear report stating that despite these challenges he feels that an increase in home sales still lies ahead possibly finishing out 2018 with an increase of 1.8% over last year.
“Overall fundamentals remain solid, driven by a growing economy and steady job creation, which will sustain home sales in 2018 slightly above last year’s pace,” said Yun. “The worsening housing shortage means home prices are primed to rise further this year too, hindering affordability conditions for homebuyers in markets across the country.”
The lack of inventory is the primary factor limiting sales from being any higher. Although home sales have risen since the start of 2018, it will be hard for them to increase greatly without more supply to meet demand. By comparison to a year ago, inventory by the end of March of this year was 7.2% lower than 2017 according to NAR. Available inventory has been diminishing continuously for the past 5 years and is currently at a 3.6 month supply. On top of the tight levels, it is expected that mortgage rates will also inch up over the next year posing further affordability challenges.
“Challenging affordability conditions have prevented a meaningful rise in the homeownership rate after having fallen to a 50-year low a few years ago,” said Yun. “To increase homeownership, more home construction is needed, which could be boosted by delivering regulatory relief to community banks, removing the lumber tariff, re-examining stringent zoning laws and training more workers for the construction industry.”