The housing market and economy are starting the year with a fairly strong start, but several challenges persist in 2018. Freddie Mac economists point out some of the biggest risks to the economy and housing markets: declining affordability, obstacles to millennial homeownership, and the possibility of another recession.
Home sales, housing construction, and housing prices are expected to move modestly higher in 2018 compared to 2017, Freddie Mac notes. The economy is also predicted to grow, but “we don’t expect it to be strong enough to generate income gains that will keep pace with house prices, resulting in declining affordability that can slow housing market activity,” Freddie Mac’s report notes.
Millennials moving out of their parents’ home and into their own is still a hurdle. In 2016, about 15 percent of young adults aged 25 to 35 were still living in their parents’ home. That is five percentage points higher than in 2000. “With modest income growth, the high cost of living and high student debt, young adults are struggling to move out of their parents’ homes and form their own households,” Freddie Mac notes in its report.
Also, economists caution that a new recession could potentially happen. Economists say they are watching recession indicators closely, such as the flattening of the U.S. Treasury yield curve and the current rate of unemployment (which was 4.1 percent in December 2017). An inverted yield curve and an unemployment rate below the natural rate have historically led to a recession within two to three years, Freddie Mac notes.
“Starting off the year, things are looking pretty good for the U.S. economy and housing markets,” says Len Kiefer, deputy chief economist at Freddie Mac. “Mortgage rates are low, economic growth has accelerated in recent quarters, and housing is coming off its best year in a decade. Although housing markets have been improving year-after-year for nearly a decade, there’s still room for improvement.”
Freddie Mac forecasts moderating growth in U.S. housing market activity throughout the next two years.
“There are factors worth keeping an eye on in 2018, namely: another recession [may be] on the horizon, how housing markets will respond to declining affordability and how young adults will move the housing market―more are living at home with their parents today than in 2000,” Kiefer says.
Source: Freddie Mac
