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Science fiction writer William Gibson once said “the future is here — it’s just not evenly distributed.” The same could be said for the affordability and availability of housing in 2018. It existed — just not everywhere.

As we look back at 2018, many experts say it was a pivotal year in the housing market. Headwinds, like tight inventory and high home prices, led to a gradual cooling over the past 12 months.

On the plus side, homeowners saw their equity grow as property values shot up and markets blasted by the housing crisis finally made a comeback.

Here we’ll look at the major housing trends of 2018, including the markets that heated up, those that cooled down and the $6 trillion equity cash cow.

Home prices pump the brakes toward the end of 2018

Home price appreciation rose steadily in 2018, but it began to slow toward the latter half of the year. The rate of home price increases has fallen from 6.8 percent to 5.5 percent in the past six months, according to a report by CoreLogic. Affordability pressures affected demand in 2018, which was compounded by rising interest rates.

“Prices are rising, but in the second half of the year, the price growth has measurably slowed compared with the first half of the year,” says Lawrence Yun, chief economist and senior vice president of research at the National Association of Realtors. “I think in 2019 we may actually have a year where income growth might finally outpace home prices. I expect home prices to soften to only 2.5 percent growth in 2019.”

Home prices in the fourth quarter of 2018 were at their least affordable level since the third quarter 2008, according to ATTOM Data’s U.S. Home Affordability Report. The property data company calculates affordability by the percentage of income needed to purchase a median-priced home relative to historic averages.

Overall, poor home affordability was a dark cloud hanging over the housing market in the better part of 2018. However, there are signs of clearer skies on the horizon as affordability improved in more than half of all local markets in the fourth quarter compared with the previous quarter, says Daren Blomquist, senior vice president of communications at ATTOM Data Solutions. For people looking ahead to 2019, this could be a hopeful harbinger of things to come.

“In the later part of 2018, we saw annual wages outpace home appreciation in five local markets including Brooklyn and Seattle,” Blomquist says. “We think that housing is going to continue to become more affordable in 2019.”

Hot and cold markets across the US

While some states like Idaho, Texas and Nevada flourished, others including New York and even California began to lose steam.

Generally, the markets that had the strongest year-over-year growth were places that had taken a while to recover from the housing crisis, says Ralph McLaughlin, deputy chief economist at CoreLogic.

“We think these places are finally getting their sea legs in the housing market. They’re getting beyond a point of recovery to a healthy trajectory in the market,” McLaughlin says.

Idaho, which gained significant value in 2018, has become an attractive second home market, says says John Pataky, executive vice president at TIAA Bank.

“Idaho has different feature functionalities depending where you are in the state. It’s always been a stable market, but now it’s gotten a lot of attention — especially in the ski areas. Plus, you have some mineral activity and other industrial activity,” Pataky says.

West Virginia was another success story of 2018. The Mountain State has struggled economically because of coal mine closures and significant industrial restructuring over the past several years. But economic recovery might be in sight as the state saw a 6 percent year-over-year increase in home values in 2018.

On the other end of the spectrum, most of the places that are falling in value are facing structural changes to their economy that were put in place decades ago, McLaughlin says. One such example is de-industrialization in places like the Rust Belt, which has been happening over decades.

The area with largest drop in home values as well as the second highest number of foreclosures — trailing the Vineland-Bridgeton, New Jersey metro area by 6 basis points — was Bangor, Maine. Bangor saw a 6 percent drop in single-family home values and a 2.1 percent foreclosure rate in 2018.

Finally, there’s been a cool-down on both coasts, with prices leveling off and homes lingering on the market.

In California, which is home to some of the most expensive ZIP codes in the country, existing single-family home sales dropped 3.9 percent from October and were down 13.4 percent from November 2017, according to a report by California Association of Realtors. One such example of a stalling coastal area is Orange County. Inventory is up 53 percent this year while sales are down 27 percent compared with the previous six years in this Southern California enclave.

“We’ve seen price decreases year over year and days on market increasing in California. The same could be seen on the East Coast. However, Amazon HQ2s will help New York and D.C. We expects prices and activity to pick up in those places,” McLaughlin says.

The 5 percent bull’s-eye

After several years of historically low rates, hovering around 3.5 percent, 2018 was the year of the 5 percent mortgage interest rate.

Rates hit the 5 percent mark in early October, only to sink back into the 4s in the fourth quarter. The average 30-year fixed mortgage rate is 4.75 percent as of Dec. 20, according to Bankrate data.

“In 2018, everybody was anticipating that rates we’re gonna go up,” Pataky says. “The Fed laid out their pathway for rate increases in 2018. One of the highs was that rates didn’t go as high as they could have or possibly should have in this economic cycle.”

For homebuyers, the fact that rates wobbled around the 5 percent mark without going much higher meant they could still get a reasonably priced mortgage in 2018.

Inventory was squeezed, despite eager buyers

Inventory rebounded from the lows of 2017, but there still weren’t enough homes on the market to meet demand.

“Housing starts are slowly but surely rising,” Blomquist says. “Many people would argue that the number of houses being built is not sufficient — especially with the number of households being formed, so there is a delta in supply.”

The undersupply acts as a safety net for this cooling market, Blomquist says. One difference between now and 10 years ago, during the housing crisis, is that a decade ago there was an overhang of supply as demand tapered off.

This time around, there isn’t that excess of supply which might help prevent the market from crashing or even seeing a steep correction, Blomquist says.

Another inventory impediment is that more people are staying in their homes longer and aging in place. As Baby Boomers get older, inventory will loosen up but that won’t be for several years down the road.

“The average homeownership tenure we have now is also hitting a record high, which has also contributed to the lack of supply,” Blomquist says.

By the numbers: Single-family construction (Data from CoreLogic)

  • Over the first nine months of 2018, the total number of single-family permits issued year to date nationwide reached 664,665. On a year-over-year basis, this is a 5.7 percent increase over the September 2017 level of 628,858.
  • Year to date, single-family permits grew in the Southern and the Western regions of the country, while the Midwest and Northeast declined by 0.9 percent and 6.4 percent, respectively, compared with September 2017 year to date. The Western region had the highest growth in single-family homes (11.5 percent), while the South recorded the highest multifamily permits growth (14.9 percent) during the past 12 months.
  • Between September 2017 year to date and September 2018 year to date, 27 states saw growth in single-family permits issued while 23 states and the District of Columbia registered a decline.
    • WINNER: Colorado recorded the highest growth rate during this time at 22 percent.
    • LOSER: The District of Columbia declined by 67.9 percent, from 280 in 2017 to 90 in 2018.

Homeowners were more equity-rich than ever before

Homeowners were teeming with record levels of home equity in 2018. They sat on an excess of $6 trillion in equity, which they barely tapped — which is a good thing, Yun says.

“The equity situation is very healthy because it means that asset valuation has risen. Another contributing factor to the healthiness of the homeowner is that overall mortgage balance has not been rising. This means the borrowing level in 2018 has been very stable,” Yun says. “So homeowners are in great shape and I don’t foresee a price decline in 2019, which means homeowners will continue to increase their share of equity.”

One way homeowners can tap the equity in their homes, without selling, is through home equity lines of credit, or HELOCs. With the tax bill that went into effect this year, HELOC borrowers were limited in what they could deduct. But this didn’t seem to affect HELOC activity, McLaughlin says.

In the second quarter of 2018, HELOC volume was at the highest level since 2008. Some experts predict that as people remain in their homes longer, build up equity and eventually need to make repairs or upgrades to their homes, many folks will likely turn to HELOCs. The benefit of HELOCs is that their interest rates are typically lower than credit cards or personal loans.

“I think there are some forces that will push HELOCs higher. As refinancing becomes less enticing, HELOCs become a more attractive way to tap equity in their homes,” McLaughlin says.

What 2018 means for homebuyers, homeowners and sellers next year

Housing experts say the latter part of 2018 has paved the way for a more affordable housing market next year, especially for entry-level buyers who were sidelined by sky-high prices, competition and scant inventory.

Prices fell and flattened in the fourth quarter, and rates hovered around 5 percent while unemployment remained low and wages began to rise. All of these factors combined might give buyers a better shot at buying a home in early 2019.

For homeowners, equity will continue to pile up if home values keep rising as predicted — albeit more slowly than in 2018. This will add to the enormous equity gains seen over the past few years and give homeowners more options when it comes to using credit.

Lastly, 2019 looks to be a strong market for sellers as inventory slowly expands. For those who sell only to get back in the same market as buyers, cooling home prices can be a double-edged sword. On one hand, you’ll fetch less than premium for your property, but you’ll also have to pay less, relatively speaking, for your next house.

Read Bankrate’s mortgage rate and housing forecast for more details on what will happen to mortgage rates in 2019.

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