Lawrence C. Strauss
March 2, 2018 1:46 p.m. ET
U.S. home prices rose 5.7% in 2017, but don’t look for history to repeat itself. Javier Vivas, director of economic research at realtor.com, sees average prices increasing by 3.2% this year, partly due to anticipated softness in the luxury market. “The housing market has seen unsustainable levels of price appreciation” for the past several years, he says. “Now, we’re going to see gains moderate and normalize.”
While the higher end of the market is plagued by excess inventory, demand for less-expensive homes, including from first-time buyers, is expected to remain strong, translating into further price gains. “The key is the job market,” says Mark Zandi, chief economist at Moody’s Analytics. “Unemployment is low enough that everyone is benefiting from the good economy, including lower-middle-income households that took a while to enjoy the benefits of the better economy.”
Realtor.com (which is owned by Barron’s parent, News Corp) expects the Southeast to see some of the largest home-price gains, led by the Nashville area, at nearly 8%, and Orlando, Fla., at nearly 7%. Abundant land and strong economic growth are supporting housing in both markets.
Two other Florida markets—Lakeland-Winter Haven, in the central part of the state, and Melbourne, on the Atlantic coast—also could see a 7% gain. Las Vegas, benefiting from a healthy economy and population growth, is expected to notch a similar advance.
In Florida, “Hurricane Irma failed to derail the broad-based demand” for housing, wrote Susan Maklari, an analyst at Credit Suisse, in a recent report. Affordability in the Sunshine State remains above average in several metropolitan statistical areas, she wrote, citing Tampa, Orlando, and Sarasota.
Some other markets are benefiting from job growth and insufficient inventory to meet demand. Realtor.com forecasts a gain of 6.5% this year in Denver; 6.2% in greater Seattle; 5.8% in Raleigh, N.C.; 5.3% in Miami; 5.1% in San Francisco; and 4.4% in California’s Silicon Valley. The Denver housing market, in particular, has been helped by a robust local economy and an unemployment rate of 2.9%, compared with a national average of 4.1%.
In Texas, the Dallas–Fort Worth–Arlington market is expected to show the strongest growth, at 5.6%, with prices in Austin rising 4.4%, and greater Houston, 4.2%. Houston enjoys a diversified economy, and is rebuilding after Hurricane Harvey devastated much of the city last summer, Maklari notes.
In high-tax municipalities generally, including many in New York and California, the new tax structure “should weigh on house-price growth,” says Zandi. But he doesn’t anticipate a drop in prices in these markets.
THE HIGH-END and luxury markets could see the biggest deceleration in price growth, as more inventory and a smaller pool of buyers force sellers to price homes more competitively. Luxury housing is a “much more cyclical market,” says Zandi. “There has been a lot of building there. That’s the part of the housing market that kicked into gear coming out of the crisis”—in particular, luxury apartments.
Even so, the long-term trend is positive, given the demographics. “A lot of 50- and 60-year-olds are in that market, and there is a lot of global wealth,” he says. “Some of that will end up in housing markets.”
This year presents tough comparisons for luxury properties, which realtor.com defines as the top 5% of the market, or homes with a median sales price of $804,000. So-called entry-level luxury-home prices rose by 5.1% last year, across the board. Certain markets saw luxury prices climb much more, with homes in Maui, Hawaii; Eagle, Colo.; and Brooklyn, N.Y., up more than 30%, on average, according to realtor.com. The fastest-growing luxury markets for primary homes were Seattle; Marin County, Calif., north of San Francisco; and Brooklyn.