The Battle of the Houses: New Home Sales vs. Home Resales in 2018

Let’s face it, 2017 wasn’t the greatest year in real estate. With a record-low inventory of existing homes at 3.4 months in November, it seems that 2018 wasn’t exactly dealt a fair hand. As such, 2018 will be a year of picking up the broken pieces and recovering from a broken legacy of under-building. So, builders are looking to increase their output of new homes, but what does that mean for existing homeowners looking to sell?

Housing Starts are Climbing

Over the past decade, the housing market has been in a deficit in terms of the inventory of new homes; however, real estate experts and economic analysts are predicting that 2018 will be the year for this lack thereof development to turn around. There are also many speculations that suggest that there will be an inflection of Millennials entering homeownership throughout this next year. In fact, the homeownership rate as a whole is expected to level-out at 63.9% after hitting its all-time low of 63.4% in 2016—the lowest it has been since 1965.

In a recent report from realtor.com, they have found that homeowners and prospective buyers alike can expect to see a steady increase in home prices, as well as a moderate increase in the frequency of home sales. Despite other claims that this year’s housing market will be one of high prices and low inventory, experts are now expounding that this year will be one of evening out the difference between the low inventory and the high demand. In essence, builders are going to be increasing the output of housing starts to meet the ever-growing demand of prospective buyers and sellers that are looking to stake their claim on the housing market.

Even though the sales of existing homes are bound to increase, the magnitude of said increase is nowhere close to that of new home sales. Housing starts are expected to rise 3% throughout the year, while single-family home starts are set to increase a total of 7% over the year. With the inventory being such a concern for those involved with the real estate market, builders are doing something about it and focusing on the inventory.

What Does this Mean for Existing Homeowners?

For those existing homeowners who are looking to sell and are concerned about the growing availability of housing starts—don’t be. The beginning of 2018 is going to be your time to shine. In fact, existing home sales are projected to rise 2.5%, even with the slow reversal of the low inventory of housing units. So, even though there are bound to be more housing starts and new homes available, it isn’t a development that we will see on the market until later this year. As such, from the projected numbers and speculations of real estate experts and analysts, most of this year is going to be one of the seller, and it isn’t until later in the year that we will start seeing a greater availability of new homes and the financial repercussions of said developments.

Considering that the economy is improving, wages are increasing, and the confidence of consumers as a whole is rising, some are led to believe that existing home sales may even surpass the record-highs of 2006. However, this projected high-level of existing home sales is not independent of other factors, and is very sensitive to conditions such as: negative changes in the stock market, extremely low inventories, natural disasters, and even the newly implemented tax reform.

Who will Win?

As it goes with most things, it is difficult to say since it is still so early in the year and much of these propositions and projections are hearsay. But if I had to speculate as to whom will be the winner in terms of most sales this year, I believe that it will be a win-win situation. With the low inventory carrying over from the past decade of deficit, existing home sales will dominate the market early on this year with their increasing prices thanks to the lack thereof supply of housing units. Yet, when we set our sights on later 2018, we may start seeing an increase in new home sales, especially in more affordable suburban areas.

As more housing units are built, we will start to see a shift from existing homes to new homes. This, however, does not mean that existing homeowners are doomed to live in their houses forever, but rather, that we will see a balance occur in the market that may actually provide a helping hand to existing homeowners who are struggling to sell their homes for fear of not having a replacement home to purchase.

Adaptability is Key

While experts can sit all day crunching numbers and speculating what might happen, it isn’t actually real until it happens. This much is especially true with the real estate market. What is evident at this point in time is: inventory is low, demand is through the roof, prices are soaring, and the effects of rising mortgage rates and tax reform have yet to be felt. With that being said, if you are looking to sell your home, there is a good chance that you can sell it for a pretty penny if you do so soon, and if you are looking to buy, you may simply want to wait a little longer for the prices to go down if you haven’t considered that already.

The real estate market is fickle in nature, and while predictions are good at projecting the possibilities dependent on current standings and old patterns, they are not enough to make definitive decisions and should be taken with a grain or two of salt. Being able to adapt with the continuous changes of the housing market is the best way to utilize it to your benefit.

Comments

  1. I guess the resales will win if they’re way cheaper than the new ones

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