2017 was a year of political, environmental, and economic change. It brought the country a new presidential administration, a flurry of devastating natural disasters, and the lowest inventory of homes for sale on record.

Will this turbulence bring about a different housing market in 2018? We think so.

Specifically, we expect less enthusiasm for homebuying, more enthusiasm for home selling, and lower demand for homes in areas prone to natural hazards. This combination could eventually lead to softening prices, more inventory, and hyper-local shifts in demand for homes in markets at risk for floods, hurricanes, and wildfires.

To understand how 2017 might affect housing in 2018, Trulia recently commissioned a survey, conducted online by Harris Poll of more than 2,000 Americans age 18 and older, about their housing sentiments, hopes, and fears in the year ahead. Among our findings:

  • Americans Less Optimistic on Homebuying. One in four Americans (25%) think 2018 will be a better year to buy a home than 2017, which is the same proportion (also 25% of Americans) as those who think it will be worse. This is the first time in the past four years that Americans’ homebuying sentiment (net belief that the upcoming year will be better for buying a home than the current year versus those who believe it will be worse) for the upcoming year has been a wash. As for what this could mean for homebuying activity in 2018, only 10% of Americans said they plan to buy a home in the next 12 months.
  • Housing Optimism since Trump Presidential Win Wanes. Compared to shortly after the 2016 presidential election, Republican homebuying sentiment fell 1 percentage point to 16% from 17% last year. Likewise, Democrat household sentiment about homebuying has remained flat, staying at -10% from a year ago.
  • Americans More Enthusiastic About Selling. Nearly one in three Americans (31%) think 2018 will be a better year for selling a home than 2017, versus 14% who think it will be worse. At a 17-percentage point differential, the home-selling sentiment (net belief that the upcoming year will be better for selling a home than the current year versus those who believe it will be worse) is the second highest gap we’ve seen since we first started asking this question back in 2014. However, this enthusiasm may not immediately translate into higher inventory. Only 6% of homeowners plan to sell their home in the next 12 months.
  • Natural Disasters Become Bigger Concern Especially in the South. Given recent natural disasters, a full 39% of Americans say they are more concerned about the potential threat of a natural disaster affecting their home. Concern is highest in the hurricane- and flood-ravaged South, where 43% are more concerned about natural disasters affecting their home.

Given current American sentiment on homeownership and political-economic trends, Trulia anticipates the following in 2018:

  • As Washington nears a tax overhaul that shifts burdens for homeowners, we will continue to see cooling home prices along the Costly Coasts. However, a component of the plan, a doubling of the standard deduction, should help boost demand in the Midwest and South, where few mortgages and property tax bills are large enough to warrant itemized deductions.
  • The homeownership rate will continue to rebound as Gen Xers transition back from renting to owning and millennials get their first foray into homeownership. As such, we’ll see the homeownership rate continue to increase as it has been trending in 2017.
  • Markets poised for housing market growth in 2018 include several in the South and Midwest, including Grand Rapids, Mich., Nashville, Tenn., and Raleigh, N.C.

The American Dream for Homeownership Still Hanging in There

Last year, the share of Americans telling us that homeownership is part of their personal “American Dream” fell for the first time since 2011. For proponents of homeownership, we have some good news: that drop appears to have been a one-off decline, rather than a start of a trend. The share of Americans telling us that homeownership is part of their American Dream has held steady from last year at 72%.

While millennials still aren’t buying homes at the same rates of other generations, 73% of 18-34 year olds tell us that homeownership is part of their personal American Dream. This is up slightly from 72% after last year’s election, but still below the 80% we saw back in 2015. However, saving money continues to be the biggest issue. Among 18-34 year old renters who wish to buy, the biggest obstacles keeping them from buying a home are saving up for a down payment (66% in 2017; 56% in Nov 2016) and rising home prices (47% in 2017; 31% in Nov 2016). Perhaps as a result, most millennials who plan to buy a home one day (65%) don’t plan to do until after 2020.

What do you think is the biggest obstacle that is keeping you from buying a home at this time?
Renters who wish to buy a home 18-34 year olds renters who plan to buy a home
Saving enough for a down payment 59% 66%
Rising home prices 40% 47%
Qualifying for a mortgage 36% 37%
Having a poor credit history 33% 31%
Not having a stable job 27% 35%
Unable to pay off existing debt 26% 26%
Rising mortgage rates 18% 19%
Limited inventory 7% 4%
Other 12% 10%
None 4% 2%

Households, Citing Rising Prices, More Nervous About Buying

One in four Americans (25%) believe 2018 to be a better year for buying a home than 2017, which is the same proportion (also 25% of Americans) as those who think it will be worse. For the first time since we started asking the question in our annual survey, the homebuying sentiment among Americans (which is the net belief that the coming year will be better for buying a home than the current year, versus those who believe it will be worse) is a wash. To put this into perspective, the homebuying sentiment is down 10 percentage points to 0% in 2017 from 10% in 2014.

Why? It’s tough to tell, but one sign from our survey stands out: the share of American renters who wish to buy a home and tell us that rising home prices is their biggest obstacle to homeownership is now at the highest level since we first started asking the question in 2013 (40% in 2017, 35% in November 2016, 26% in October 2016, 27% in 2015, 32% in 2014, and 22% in 2013).

As for what this could mean for homebuying activity in 2018, only 10% of Americans said they plan to buy a home in the next 12 months. More Americans (41%) plan to wait at least two years before buying, while 38% have no plans to buy a home as their primary residence.

Now some good news for future homebuyers who may be frustrated by low inventory: the difference between the number of Americans who tell us that next year will be a better year for selling a home and those who say it will be worse is on the rise. Nearly one in three Americans (31%) think 2018 will be a better year for selling a home than 2017, versus 14% who think it will be worse. In other words, the home-selling sentiment among Americans (which is the net belief that the coming year will be better for selling a home than the current year versus those who believe it will be worse) is at a 17-percentage point differential. Not only has it increased from a 12-percentage point gap last year, but it’s the biggest since 2014, just before inventory and sentiment on selling started to take a dive.

What’s more, 16% of homeowners tell us that they plan to sell their home in the next two years, but just 6% plan to sell in the coming year. So while we expect inventory to rise, homebuyers may not feel the relief for a few years yet.

There’s no clear explanation as to why enthusiasm for selling a home is picking up, but the shift is likely related to the same possible reasons that many Americans (25%) are thinking next year will be worse for homebuying, namely, that perhaps rising prices and political uncertainty may be enticing homeowners to cash in on their equity.

Natural Disasters Causing Homeowners, Homebuyers to Rethink Where They Live

2017 brought a slew of natural disasters to the U.S. housing market. Hurricanes Harvey, Irma, and Maria wreaked havoc on Houston, Miami, and The Caribbean Islands. At the same time, wildfires in Northern California devastated California wine country. These natural disasters caused hundreds of deaths and billions of dollars’ worth of damage. It turns out that not only have these disasters affected homeowners in these areas, but they also appeared to have affected the psyche of homeowners and homebuyers in other parts of the country.

When asked, 39% of Americans say recent natural disasters have made them more concerned about the potential threat of natural disasters affecting their home, while just 5% are less concerned. In addition, the share is highest in the hurricane- and flood-ravaged South, where 43% are somewhat or much more concerned, while 41% in the Northeast are, 39% in the West are, and 33% in the Midwest are. Not surprisingly, Americans seem to be most concerned about floods, hurricanes and wildfires, with 72%, 61%, and 58%, respectively telling us the potential for those natural disasters would influence their home search if they were looking to purchase a home.

2018 Housing Market Prediction No. 1: Tax Plans Will Help Cool Expensive Coastal Markets

Our first housing markets prediction for 2018 is tax related. As we write this, congress is hammering out the final details on a tax overhaul. The bill isn’t final, but there is agreement on approaches. Should the plan become law, the luxury market and housing markets in expensive, high-tax states in the Pacific West and Northeast might see cooling, including moderation of home price growth, new construction, and existing home sales.

One part of the plan may include a change to the mortgage interest deduction (MID). Lawmakers are considering lowering the cap to $500,000 from $1 million. Another possibility: the ability to deduct property taxes would be capped at $10,000. Assuming that scenario, when it comes to the share of homes on the market that are above $555,000 (which would translate into a mortgage of $500,000 or more assuming a 10% down payment), homebuyers in every major coastal market in California would be see their taxes rise, as well as several markets in the Northeast. For example, buyers of 96.2%, 87.4%, and 81.9% of listings in San Francisco, San Jose, Calif., and Orange County, Calif., respectively, would experience an increase in their housing-related tax liabilities should the president ultimately sign such a bill.

When it comes to the impact of potentially capping property tax deductions at $10,000, the greater New York City metropolitan area will be hit particularly hard, as 46.5%, 33.7%, and 22.7% of property taxpayers in Long Island, Newark, N.J., and New York, respectively, currently pay more than $10,000 annually in property tax.

Metros with the Largest % of Listings Above $555,000 Metros with the Largest % of Property Tax Bills Above $10,000 Metros with the Highest Median Property Tax Bill
Metro % Listings Above $555,000 Metro % of Property Tax Bills Above $10,000 Metro Median Property Tax Bill
San Francisco, CA 96.2% Long Island, NY 46.5% Long Island, NY $9,677
San Jose, CA 87.4% Newark, NJ 33.7% Newark, NJ $8,391
Orange County, CA 81.9% New York, NY 22.7% New York, NY $6,574
Ventura County, CA 77.0% Fairfield County, CT 20.6% Fairfield County, CT $6,133
Los Angeles, CA 68.5% San Francisco, CA 19.9% Camden, NJ $5,827
Oakland, CA 67.4% San Jose, CA 18.0% Chicago, IL $5,787
San Diego, CA 64.9% Boston, MA 12.4% San Jose, CA $5,558
Honolulu, HI 58.4% Chicago, IL 11.8% San Francisco, CA $5,555
Cambridge-Newton-Framingham, MA 54.3% Austin, TX 11.4% New Haven, CT $5,122
Long Island, NY 54.1% Cambridge-Newton-Framingham, MA 10.8% Boston, MA $4,999

The reach would be greater should the MID remain capped at $1 million, but the state and local tax deduction be eliminated, including property taxes. Removing all state and local deductions would impact all homeowners who itemize, regardless of where they live, but would have the largest impact in markets where property taxes are high, either because home values are pricey or because of high property tax rates. These markets are concentrated in high tax rate Northeastern states, such as New York, New Jersey, and Connecticut, and also pricey states such as California.

2018 Housing Market Prediction No. 2: The Homeownership Rate Will Continue to Climb

We predict that the homeownership rate will continue to climb, albeit slowly. 2017 saw the first significant increase in the homeownership rate in over 10 years, growing from 62.9% in 2016 Q2 to 63.7% in 2017 Q2. There are also signs this increase wasn’t a one-time blip: the homeownership in 2017 Q3 increased yet again, growing to 63.9% from 63.5% in 2016 Q3.  Also, for the first time in 12 years, the number of owner-occupied households grew faster than renter households for three consecutive quarters. Meanwhile, the number of renter households has actually fallen for two consecutive quarters.

We see these trends continuing into 2018, with homeownership outpacing renting for the indefinite future. However, we don’t expect this increase to come quickly, as low inventory, slow wage growth, and expensive starter homes in many of our largest markets present strong headwinds for those looking to transition into homeownership.

Overall, these broad trends are important, since strong renter household formation is one of the reasons why the homeownership rate dropped precipitously after the onset of the Great Recession. The fact that we now have three consecutive quarters where owner households outpaced renters is a strong sign this trend is reversing.

Finally, there’s more good news for proponents of U.S. homeownership: the homeownership rate actually ticked up both for households under 35 as well as those aged 35-44, with the former showing a substantial increase from 34.1% in 2016 Q2 to 35.3% in 2017 Q2. The for-sale housing market will lose momentum in the years ahead if millennials don’t transition into homeownership (or back into homeownership in the case of Gen X) in order to support the resale of homes by their older counterparts. Though homebuying among millennials is likely to be sluggish in the short-run, the long-run potential for this generation to support housing consumption in the U.S. is large.

2018 Housing Market Prediction #3: Markets on the Move

Lastly, our third prediction is about which U.S. housing markets we should keep an eye on in 2018. In short, look to the Midwest and South.

Trulia identified 10 housing markets among the 100 largest U.S. markets that we think are poised for growth based on five key metrics: (1) Strong job growth over the past year as a sign of economic prosperity and opportunity; (2) Low vacancy rates as a measure that housing supply does not exceed demand; (3) High starter-home affordability as market indicator that first-time buyers stand a chance to buy a home; (4) More inbound home searches on Trulia than outbound as a gauge of how popular the market is nationally; and, (5) a large share of the adult population under age 35 as a signal of growing homebuying population as the homeownership rate amongst young households is ticking up. They are:

  1. Grand Rapids, Mich.
  2. Nashville, Tenn.
  3. Raleigh, N.C.
  4. El Paso, Texas
  5. San Antonio, Texas
  6. Fort Worth, Texas
  7. Austin, Texas
  8. Columbus, Ohio
  9. Madison, Wis.
  10. Cincinnati, Ohio

Grand Rapids, Mich., tops our list because it has seen strong and recent employment growth (ranked 11th), has a relatively low vacancy rate, and a high share of households under 35 (ranked 16th and 17th, respectively). Nashville, Tenn., ranks second because it has the strongest job growth in the country and has a very high share of households under 35 (ranked 8th), but falters in affordability (ranked 58h). Raleigh, N.C., ranks third on our list because of its strength in two categories: it has strong job growth (ranks 3rd) and a low vacancy rate (ranks 15th). Raleigh lags in affordability and inbound search ratio (ranks 43rd and 46th, respectively). Note that markets in the expensive West or Northeast fail to make our list, primarily because of  affordability (mostly in the West) and slower job growth (mostly in the Northeast).

The Takeaway

Nationally, we expect the housing market to continue to be relatively healthy in 2018, but changes may come. Frustrated homebuyers in expensive coastal markets with low inventory may see price cooling and inventory start to tick up if either of the proposed tax plans pass in their current form. Americans are also starting to become less enthusiastic about buying a home next year, which should help reduce competition, while they’re also becoming more optimistic about selling a home, which should help inventory.

While enthusiasm for homebuying is softening, millennials and Gen Xers have started to buy, and it looks like some are transitioning from renting to buying. If this trend continues into 2018, we should expect the homeownership rate to continue rising.

Last, look inland for markets that are poised for housing market growth in 2018: those with a good combination of job growth, online search interest, low vacancy rates, young households, and affordability are exclusively in Midwest and South. But even we aren’t getting too confident in a predictable future: as we saw in 2017, change can come rapidly along with consumers’ confidence in housing.

Methodology

The 2017 survey was conducted online within the United States between Nov. 9th and 13th, 2017 among 2,188 adults (aged 18 and older) by Harris Poll on behalf of Trulia. The 2016 surveys were conducted online within the United States between Oct. 26th and 28th among 2,007 adults (aged 18 and older) and again between Nov. 15th and 17th, 2016 among 2,081 adults (aged 18 and over) by Harris Poll on behalf of Trulia. The 2015 survey was conducted online within the United States between November 19th and 23rd, 2015 among 2,016 adults (aged 18 and over) by Harris Poll on behalf of Trulia. The 2014 survey was conducted online within the United States between November 6th and 10th, 2014 among 2,008 adults (aged 18 and older) by Harris Poll on behalf of Trulia. For complete survey methodology for all survey waves, including weighting variables and subgroup sample sizes, please contact pr@trulia.com

 Figures were weighted where necessary to bring them into line with their actual proportions in the population. Propensity score weighting was used to adjust for respondents’ propensity to be online.

All sample surveys and polls, whether or not they use probability sampling, are subject to multiple sources of error which are most often not possible to quantify or estimate, including sampling error, coverage error, error associated with nonresponse, error associated with question wording and response options, and post-survey weighting and adjustments. Therefore, the words “margin of error” are avoided as they are misleading. All that can be calculated are different possible sampling errors with different probabilities for pure, unweighted, random samples with 100% response rates. These are only theoretical because no published polls come close to this ideal.

Respondents for this survey were selected from among those who have agreed to participate in our surveys. The data have been weighted to reflect the composition of the adult population. Because the sample is based on those who agreed to participate in our panel, no estimates of theoretical sampling error can be calculated.

About The Harris Poll

Over the last 5 decades, Harris Polls have become media staples.  Frequent polls tap into a representative sample of Americans of all ages, genders, income and ethnic backgrounds.  From sports to health, politics to the economy, the Harris Poll reflects Americans’ opinions on a wide range of topics and are regularly published by national, local, consumer, business and trade media outlets. Harris Poll offers a diverse portfolio of proprietary client solutions to anchor and propel communications campaigns.  Armed with relevant insights on public opinion, public and private sector clients harness the power of the Harris Poll to gain both credibility and coverage to drive their desired business outcomes.