What might fan the flames of 2018′s housing market?

Uncertainty may be the only constant when looking ahead to 2018’s housing market. As fires destroyed homes across California this week, the U.S. Congress mulled changes in mortgage interest and property tax deductions. Will sweeping tax reforms slow an over-heated market? The impact–or lack thereof–has yet to be determined. The real question is: Will the housing supply increase next year?

The California Association of Realtors (C.A.R.) released figures earlier this week predicting a tight supply condition in 2018, as concerns about demographic shifts, property taxes, and capital gains continue to stall homeowners from listing their properties. While C.A.R. sees an even stronger economy in 2018, lack of inventory, low housing affordability, the likelihood of an interest rate hike, and the ongoing uncertainty in the policy arena provide a less-than-favorable environment for the state’s housing market. C.A.R. projects the number of home sales in California will end 2017 1.3% higher than 2016′s figures, and forecasts 1% growth in 2018 over this year’s numbers.

California’s home prices are predicted to rise next year, as a supply shortage and strong demand continue to dictate the market’s temperature. Higher prices will, in turn, affect affordability. The tug-of-war between these forces will elevate the statewide median home price, but will also keep appreciation in check. C.A.R. sees 2017′s home prices rising 7.2% over 2016′s stats, and predicts a more moderate 4.3% growth year-over-year in 2018.