A recent article on Inman featured 8 real estate experts that shared their beliefs about which direction the housing market would take in the coming year. In many ways, 2016 was an unprecedented year. From Brexit to the Chicago Cubs winning the World Series to Donald Trump’s election, 2016 wasn’t short on surprises. Historically low mortgage rates encouraged the strongest home sales in nearly a decade, despite home prices rising nationwide. Will 2017 see more of the same?
Interest Rates and the Economy
Another narrative for 2016 was the Federal Reserve’s waffling on interest rates. In the first half of the year, China’s economy went into a slump, then Brexit happened, and none of the 4 proposed interest rate hikes for the year materialized. Now, however, the Fed is ready to move, with the economy creating an average of 188,000 jobs per month in the last year. Unemployment now stands at 4.6%, the lowest rate recorded since August 2007.
With interest rates set to rise to as much as 4.5% in 2017, mortgage rates will rise as well. Homeowners and prospective buyers in overpriced markets like Miami, San Francisco and Los Angeles are likely to feel the burden of higher rates more than most. The prevailing sentiment is that higher rates “will dampen both home sales and price increases next year”. Others aren’t convinced.
Amazingly, the National Association of Realtors is predicting existing-home sales to eclipse the 5.8 million forecast for 2016, with 6 million sales predicted for the coming year. The Mortgage Bankers Association, Fannie Mae and Freddie Mac are even more optimistic, predicting 6.5 million and 6.2 million sales, respectively. There’s the downward pressure of higher borrowing costs and the upward pressure of stronger economic growth – jobs and income – and the MBA, Fannie Mae and Freddie Mac are putting their bets on the latter.
Supply and demand. Inventory is down 11% in the nation’s top 100 metropolitan areas and home prices are anticipated to increase 3.9% nationwide, with the greatest appreciation (5.8%) in Western metros. That’s roughly 1% below the 4.9% increase we expect to see for all of 2016. Still, it’s all about location, location, location.
Some metros – like Boston – Cambridge – Newton – are expected to see prices rise over 6%. Speaking of location, realtor.com® rates 15 of the 19 largest markets in the wonderful Midwest as having “strong affordability.” With Millennial market share already higher in these markets by 4%, this trend is expected to continue even as interest rates increase, a development that should shape lender marketing campaigns and outreach efforts. Outside of the big metro areas, the picture looks good for homebuyers, with few buyers having to spend more than 20% of their income to buy a home.
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