Home values across the U.S. spiked almost 9 percent last month, marking that fastest pace since the height of the housing bubble in June 2006. Despite the sharply higher prices, demand from buyers remains strong, thanks to a combination of demographic changes, rising wages and the new tax cut. On top of that, new construction has been sluggish, leading to tight inventory. Below are five things to know about the current housing market.
Home values are appreciating fastest in these cities – Some locations are witnessing faster appreciation than others. The cities experiencing breakneck price gains include San Jose, where home values rose 26 percent in April to a median $1.26 million. Other pricey locations include Las Vegas and Seattle, where home values rose 16.5 percent and 13.6 percent, respectively, last month.
Waiting until late 2018 or 2019 may pay off – Home prices may moderate later this year and in 2019, according to Freddie Mac. The government mortgage finance company said it predicts home prices will rise 7 percent in 2018, but will only increase 3.1 percent next year.
Not all millennials are living at home – The size of the millennial generation – some 83 million people under age 35 – guarantees built-in demand for housing, even if their household formation is slower than in previous generations. About one-third of millennials still live with adult relatives – but that still leaves millions who are on the hunt for their own places.
About 1 million new households will form each year for the next few years, creating pent-up demand for housing.
Construction isn’t keeping up – The single-family housing market isn’t keeping up with new homes. Labor shortages and development costs are to blame for the shortfall, although construction started to pick up late last year.
Existing home buyers are hesitant to sell – Because there’s not enough inventory to meet demand, some home owners are opting to stay put rather than to put their homes on the market. The fear is that they might sell their home quickly, but be unable to find their new home to buy adding to a vicious cycle of low inventory.