Man flips notepad sheet on white wooden table. 2017 is turning, 2018 is opening

The 2018 Real Estate Forecast: What the Experts are Saying

In 2017, we had our most successful year yet, facilitating millions of dollars in investments in Detroit cash flow rental properties. We’ve never been more bullish on our City. (Realtor.com, CNBC, Business Insider, HomeUnion, TheStreet, Mashvisor and FORBES have all recently listed The D as one of the 10 best cities for real estate investing.)

Good news is: there’s reason to be optimistic about real estate markets across the whole country. Currently, U.S. homes are at their highest value ever, and home price growth has hit a three-year high. In Detroit, specifically, the real estate market is “very hot,” and home values continue to skyrocket.

In our first investing guide of 2018, we break down the top nine factors determining the future of American real estate, and why the experts seem to agree that there’s no sign of another housing bubble. In other words, the 2018 real estate forecast is bright, and if you have money to invest, real estate remains a solid choice for passive income and long-term ROI.                                      

The 2018 Real Estate Forecast: What the Experts are Saying

The Top 9 Housing Predictions of 2018

“The economic environment remains favorable for housing and mortgage markets” – Sean Becketti, chief economist for Freddie Mac, which forecasts total home sales (new + existing homes) to increase about 2% in 2018

1. Supply will Catch Up with Demand

While Freddie Mac did warn that “limited inventory will remain a persistent problem,” Realtor.com points out that if for-sale housing inventory “increases as predicted by fall,” we’ll be seeing the first net inventory gain in three years.

2. Prices will Increase

According to MarketLeader, “if there is one thing most early forecasters agree on, it’s that home prices will continue to rise. Where they part ways, however, is how much they will rise.”

Indeed, Freddie Mac and CoreLogic foresee an approximate 5% increase, while HousingWire predicts a rise closer to 3%.

“This slower rate of increase will allow for home sales to pick up next year,” they reported.

3. Mortgage Rates will Rise

The Mortgage Bankers Association predicts rates will continue rising, averaging more than 4.5% through 2018 and even passing 5% in the next few years.

4. Existing Home Sales will Grow

Freddie Mac says existing home sales are not likely to increase, but others disagree.

HousingWire fears ongoing supply shortages but forecasts an eventual reversal in the trend and a resulting 2.5% existing home sale increase in 2018, “due to an improving economy, job growth and rising confidence.”

The National Association of Realtors, meanwhile, expects a growth rate of 3.7%, boosting home sales to 5.67 million — the highest level in more than a decade (2006).

5. Housing Starts and New Home Sales will Grow

When it comes to housing starts and new home sales, and their impact on sales overall in 2018, it seems all the experts agree.

Freddie Mac says new home sales “should continue to grind higher with single-family construction,” and HousingWire concurs, pointing to a 3% increase in housing starts, year over year, and a 7% rise in single-family home starts, specifically.

6. The Homeownership Rate will Stabilize

The homeownership rate bottomed out in the second quarter of 2016 but has trended upwards throughout 2017; Trulia sees that growth continuing in 2018, “as Gen Xers transition back from renting to owning and millennials get their first foray into homeownership.”

7. Millennials will (Finally) Start Buying Homes

In his Real Estate Forecast 2018 to 2020, Gord Collins states that the number-two reason “people are still eager to buy real estate” is that “millennials need a home to raise their families.” And, as those born between 1981 and 1997 naturally reach the child-rearing age, more and more will be moving out of mom and dad’s basement, as articulated recently by the Forbes Real Estate Council.

Our past research backs this up.

On November 20, 2017, we reported that the percentage of millennial home owners had increased year over year, from 34.1% to 35.3%, and millennials had made up 38% of 424,000 first-time homebuyers served by Home Depot in the second quarter of 2017 alone.

“Homes are being bought by millennials,” Home Depot Chief Financial Officer Carol Tome told TheStreet. “It’s what we thought would happen. People were saying millennials would never buy a home. Yet, we had the research on it…”

The numbers are even more persuasive for real estate investors.

An August 2017 study by RealtyShares shows that 55% of millennials want to invest —  or are already invested — in real estate. Fannie Mae, meanwhile, reports that 85% of the millennial generation views real estate as a “good investment.”

According to Gallup, interest in real estate investing among younger Americans has already impacted stock market investing overall: in 2007, approximately 67% of Americans had money in the stock market; by 2016, that number had fallen to 50%.

8. The Rise of the Real Estate Investor

In 2017, real estate was America’s number-one investment pick, for the fourth straight year.

The U.S. rental market, says Bob Pifke, CMO of Property Management Business Solutions, “has long been misunderstood and dismissed as only an option for those wealthy enough to use real estate investing as a business.” However, “the results of [the Iceberg Report] have painted a clear picture that single-family residential investors are becoming more and more serious, and that rental properties are being recognized as a mainstream asset for investors building a portfolio for retirement.”

An October 2017 report from Cornell University’s Baker Program in Real Estate and Hodes Weill & Associates, a global real estate advisory firm, reveals that institutional investors, like millennials, continue to increase their real estate investments.

As of the second quarter of last year, a third of high-net-worth Tiger 21 members’ portfolios was invested in real estate — greater than any other asset class, and an “extraordinary move,” according to Tiger 21 founder Michael Sonnenfeldt.

Indeed, even Warren Buffett is investing.

And the experts see this trend continuing:

  • FORBES calls real estate one of the four best investments for 2018.
  • Morningstar expects the real estate’s “slow but steady climb” to continue.
  • National Real Estate Investor says “investors are looking forward to another strong year for apartment sales.”

Foreign Investors Buying in Record Numbers

U.S. real estate is also an increasingly intriguing investment option for foreigners.

According to the 2017 Profile of International Activity in U.S. Residential Real Estate report from the National Association of Realtors (NAR), transactions increased in all five of the top countries. For the fourth consecutive year, China topped all countries based on sales dollar volume; however, the reason for the sudden explosion was a more than 100% jump in activity from a nearby neighbor.

Between April 2016 and March 2017, foreign buyers and recent immigrants purchased $153 billion in residential property: an increase of 49% from 2016, and a new high surpassing 2015’s $103.9 billion. The greatest contributor was Canada, with buyers bringing in $19 billion, up from $8.9 billion the previous year.

But What About the Tax Bill?

A lot has been written about the GOP tax bill, and how it could impact the real estate market and real estate investors in 2018 and beyond. Overall, it’s a positive prognosis.

As written by New York Times best-selling author Dean Graziosi in HuffPost:

The majority of real estate investors conduct their business through sole proprietorships, partnerships, LLCs or S corporations, which are considered “pass-through” entities by the IRS. This means that the investor does not pay business income tax, but rather passes the income through to his/her personal tax return, and is taxed on this income based on the rate determined by the individual’s tax bracket and personal tax returns.

Gregg Logan, Managing Director of RCLCO, a leading real estate consulting firm, agrees, pointing specifically to the effect the bill will have on real estate investors:

Overall, the bill’s impact to many real estate companies is positive, though the impacts on the housing market are quite varied… The opportunity for single family rental properties, particularly the emerging “built-as” rental market… appears to be a winner under the new law, given the changes to how pass through income will be taxed… Further, all real estate investors that employ pass through entities stand to benefit from the new tax treatment.

What About Me?

If you’re a real estate investor, and particularly an investor in the single- or multi-family rental market in a region on the rise (e.g., Detroit), you should feel confident in your investments.

If you haven’t yet diversified your portfolio by investing in real estate, we can help. Properties in Detroit regularly sell for less than $50,000 and deliver hundreds of dollars in monthly income with returns between 10% and 20%.

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