Will 2018 Be a Good Year to Sell?

by Steve CookMarch 2, 2018

Virtually every real estate market in the nation has experienced buyers’ markets over the past three years. Since 2014, the median home price has risen 11 percent, and 5.8 percent in 2017 alone. With that kind of momentum, will the best sellers’ market since the housing boom continue through 2018? Or will this be the year that demand sags and conditions favor buyers?

In the first half of 2017, competitively priced homes attracted multiple offers quickly. In many markets, buyers battled each other in bidding wars to win contracts on homes that were on the market only a few days. However, during the last two quarters of the year, demand slowed and for several months and sales fell briefly behind last year. 2017 still set a sales record and has been selling faster, and by the end of last year, homes were selling in an average of 40 days, faster than the average of 53 days at the end of 2016. Forty-four percent of homes sold in December were on the market for less than a month.

The Inventory Drought

The real estate economy operates on the principles of supply and demand. Today demand is strong from young families who want to be homeowners, but supply is a problem in most markets. For several years, inadequate supplies of homes for sale have driven up prices to the point that affordability has become a major problem for buyers, especially for first-time buyers. By the end of January, the total number of homes available for sale was 9.5 percent lower than a year ago and has fallen year-over-year for 32 consecutive months.

Several factors contribute to the inventory drought, including a decline in new home construction, the fact many homes had not yet returned to their peak prices a decade ago, and the conversion of single-family homes from ownership to rentals. As prices rise, more owners will be motivated to sell. Also, new home construction is increasing. Eventfully demand and supply will come into balance, but probably not before the end of this year so the inventory shortage will continue to bolster prices.

The drought of homes for sale varies by price tier. Supplies of luxury-priced homes—those listed above $500,000−are plentiful. Homes for move-up buyers are becoming harder to find, especially in more expensive markets and since they can’t find a home they can afford, many move-up buyers are waiting for conditions to improve. The supply of affordable homes is not growing because they are not selling. Two other factors, the conversion of millions of smaller homes into rentals and the small numbers new starter coming on to the market, are diminishing the supply. As a result, smaller homes are appreciating at about twice the rate of premium-priced homes.
2018 good year to sell?

Tips for Selling this Year

Most economists expect the inventory shortage to continue through the year and prices to rise as much as they did last year, about 6 percent. Economists at Fannie Mae and Freddie Mac expect prices to rise an average of 5.6 to 5.7 percent in 2018. January’s existing sales report found that the inventory shortage at the start of the year was just as bad as it was at the end of 2017.

Here are some suggestions for homeowners thinking of selling this year.

  • Follow local market dynamics. Trends in sales, prices, and inventories in your local market are more difficult to follow than national trends. “National” real estate market reports are about as useful to a local homeowner as a national weather forecast. They are good starting points to understand what’s going on, but data on your local metropolitan market, zip code and your hyper-local community are more useful to buyers and sellers.In recent years, much more local information has become available to professionals. Ask your real estate agent to provide you monthly market data and use Homes.com to carefully follow new listings and sales in your community to get a sense of long it takes houses in different price tiers to sell and final versus list prices (sales to list price ratio).

    Are homes selling faster or slower where you live? Are prices rising quickly or slowly? Are sellers getting their asking prices or less (or possibly more)? Are local inventories rising or falling? Compare these data on a year-over-year basis to identify and trends, because real estate markets are very seasonal.

  • Get an appraisal. When local home prices are frequently changing, so are home values. Follow trends on values at the state and metro levels on Homes.com. What’s more important is changes in your home’s value. The best way to do so is to have an appraisal done. Wait until you are deciding on setting your price just before you list so that the appraisal is as current as possible. Your appraisal may be a valuable factor when negotiating with buyers.
  • Avoid overpricing. Even in a sellers’ market, overprices homes are hard to sell. Even if you get a contract, the lender’s appraisal could come in lower than the agreed upon sales price, which might kill the deal. If your home lingers on the market for 90 days or more, you might want to reduce your price to encourage buyers.

Summary

For sellers who are waiting for the current price increases to level off, 2018 could be a historic year. It might mark the year prices in your community rebounded from the housing crash and reached new peaks. Prices may soften when inventories begin to improve. Owners who wait until 2019 or later to sell may fare worse than those who sell this year.

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About The Author
Steve Cook
Steve Cook is editor and co-publisher of Real Estate Economy Watch. He is a member of the board of the National Association of Real Estate Editors and writes for several leading Web sites, including Inman News. From 1999 to 2007 he was vice president for public affairs at the National Association of Realtors.