The 2018 Outlook for U.S. Housing Markets was framed by the possibility of an erosion of housing affordability 
spreading to more markets.
A central theme for the 2018 housing market will be the continuing erosion of housing affordability, an issue that will permeate a growing list of American neighborhoods. Today housing affordability is already a major concern in many high-cost markets, and will spread to more moderate-cost places across the nation. Let’s look at the economic factors that we expect will further weaken affordability in the coming year.
One is the projected rise in interest rates. The Federal Reserve has signaled its plan to increase its federal funds target, pushing other short-term interest rates up including initial rates on ARMs, and to reduce its portfolio of long-term Treasury and mortgage-backed securities. And while fixed-rate mortgage rates remain at historically low levels, they are already up about three-fourths of a percentage point above their record low. Fixed-rate loans are forecast to rise in 2018 by at least one-half a percentage point to as much as a full percentage point. (Figure 1)
A second factor is the increasing price of buying a home. CoreLogic’s national Home Price Index has been rising at a 6% or better clip over the past year with less expensive homes rising even faster. When combined with the rise in mortgage rates, the price increase for lower-priced homes translates into approximately a 15% rise over the last year in the monthly principal and interest payment for a first-time buyer. We expect this trend to continue in 2018, with the CoreLogic Home Price Index for the U.S. up another 5%.
Third, we expect the very low for-sale inventory, especially for ‘starter’ homes, to continue. As low inventory confronts the rising desire for homeownership by a growing number of Millennials, home sale conditions will favor the seller with low time-on-market, multiple contracts per home, and more homes that sell at or above list price. These phenomena will be particularly acute in the first-time buyer segment, where there is already a shortage of for-sale inventory.
Declining affordability can be alleviated by new construction and rehabilitation of older housing stock. We expect housing starts to increase 5 percent in 2018, but more building is necessary to alleviate the affordability challenges in many higher-cost American cities.
Link to the report: http://bit.ly/2kraEjw