2017 Housing Market – What to Expect?

The real estate market in 2016 brought us several surprises.  Home prices appreciated beyond expectations, finally passing the previous 2006 peak.  Mortgage rates stayed low for most of the year but hit 4% by the end of the year for the first time in two years.   New home construction remained lower than expected.  There were some signs that Millennials, a generation which some thought would never buy homes, are beginning to enter the market.

Here are seven things housing experts expect to see in 2017:

1. Prices will continue to rise–but more slowly. 

Prices rose every month last year with the largest gains coming in the latter half of the year and a 5.61% increase overall in national housing prices. Experts expect prices will continue their climb, but gains will slow.

With the current high consumer confidence numbers and low unemployment rate, affordability trends do not suggest an immediate reversal in home price trends,” noted David Blitzer, chairman of the Index Committee at S&P Dow Jones Indices, in the December release of the Case-Shiller home price index. “Nevertheless, home prices cannot rise faster than incomes and inflation indefinitely.”  Redfin expects prices to rise by 5.3% this year, while Zillow is calling for a 3.2% increase in 2017.

2. Affordability will worsen. 

Wages are expected to grow this year, but affordable homes are not. This trend is expected to intensify with a continued shortage in low- to moderate-priced inventory and rising mortgage rates.  A decade ago this disconnect would not have been so apparent because buyers could get subprime loans, but now lending requirements have tightened considerably. The percent of new listings in the lowest price tier of the market has declined nearly every month in the last five years.

3. Mortgage rates will change. 

The two major political events of 2016 set mortgage rates moving in opposite directions. The June British Brexit vote drove rates near a record low. Then, the November election results sent rates above 4% for the first time in two years. Experts expect movement in 2017, but there is no consensus where the 30-year fixed rate will end. Estimates range from between 3.75% and 4.6%–not so far from where it is today.

The Federal Reserve’s policy makers indicated they expect three hikes in 2017, which could have a larger effect. That’s up from the two officials projected before Donald Trump was elected. That being said, it should be remembered that the Fed also  thought they would increase rates three times in 2016.

4. Credit availability will improve–maybe. 

It’s too soon to tell what Trump administration priorities will be regarding housing. However, the president-elect and his team have made it clear that they hope to repeal much of the Dodd-Frank post-crisis financial regulation. Theoretically, this would allow banks to lend more freely to wide-range of would be buyers. There also is speculation that Trump will return government-controlled mortgage companies Fannie Mae and Freddie Mac to private control.  While investors have welcomed this possibility, some housing economists worry such a move will restrict credit availability.  In short – stay tuned!

5. Supply will improve but remain short tight. 

The housing market inventory tightened in 2016. It led to price appreciation, as well as a hyper fast market for buyers and discouraged would-be-sellers from putting their homes on the market without assured properties to which they would move. It is unlikely that inventory will magically reach equilibrium in 2017, but there are some signs the coming year could see a small bump in housing supply–with increased new home construction.

Home builder sentiment improved late last year after the election, as many expect Trump to be a friend to the industry. Meanwhile, strong demand should also encourage building.  Construction, however, is unlikely to improve the affordability picture because most building in recent years has been on the high-end, where builders feel they can get a better return.

It is unlikely that there are going to be lots of existing homes coming on the market to improve the tight inventory. Homeowners with mortgages below 4% are likely to stay in low priced homes rather than upgrade.

6. More Millennials will become homeowners–and renters. 

Millennials will continue to make up a large and growing portion of the buyer pool. Of course much of this is due to the fact that Millennials–adults born after 1980–are now the largest adult generation and make up the greatest percentage of the workforce. The real estate brokerage, Redfin, expects Millennial home buyers will move from the coasts to “inland markets” where starter homes are more affordable.

7. Competition will grow fiercer.

The seller market is predicted to continue in 2017  as demand is expected to increase. In 2016 the typical homes stayed on the market for just 52 days, about a week faster than in 2015 and the fastest year since Redfin began measuring in 2009. The brokerage expects 2017 to be even faster.