The housing market has shown signs of strength recently, but momentum remains elusive. Will this be the year that housing breaks out? Expert opinions vary, but most see a moderating market that will continue to pose a challenge for new homebuyers.
- Mortgage rates – Most estimates for mortgage rates suggest the post-election trend of sharply rising interest rates will end soon. The online real estate brokerage Redfin predicts average interest rates for a 30-year fixed rate mortgage to stay below 4.3% in 2017, although rates were already there as of December 22 according to the St. Louis Fed. The National Association of Realtors (NAR) predicts a modest rise to 4.6% while Realtor.com predicts 4.5%.
With the Federal Reserve already raising interest rates and signaling three more small hikes for 2017, these predictions infer that much of the change in rates has already been priced in. If so, buyers should still have a significant window in 2017 to enjoy sub-5% rates.
- Housing Inventory and Starts – Aside from one data point in July 2014, the inventory of available homes has not reached the 6-month supply indicative of a balanced market since October 2011. Supply has been mostly rising since July, but is still in the 5.2% range as of October. The market appears likely to remain tight through 2017.
A survey of economists by the Wall Street Journal (WSJ) predicts 1.3 million housing starts in 2017, similar to the 1.22 million projected by NAR. These values are below the 1.5 million new homes necessary to truly close the gap between supply and demand, but inventory concerns should ease somewhat.
- Home Prices – Over the past three years, home prices have settled into a relatively steady pattern of approximately 5 to 6% annual gains. As interest rates finally rise significantly over 4% and stay there while inventory increases, price increases are likely to moderate. More homes are available while fewer people can afford them, keeping prices partly in check.
Predictions for average home prices vary significantly. As of October, Zillow reported a 6.5% increase in median home values for the previous 12 months and predicts a slowdown to 3.2%. Realtor.com expects a 3.9% rate for 2017, the WSJ survey predicts a 4.3% increase, and Redfin sees a more aggressive 5.3% growth rate.
- Loan Access – According to Redfin, credit should loosen. Freddie Mac and Fannie Mae are backing larger loans and mortgages are now available with as much as 97%-99% financed. Meanwhile, the Trump administration has floated plans to privatize Freddie and Fannie, and the Dodd-Frank legislation that tightened credit is expected to be under legislative attack. These factors are unlikely to occur in time to affect the 2017 mortgage market, but it's at least possible that easy credit could return.
How does all this affect you? That depends on your place in the housing market.
As an average homeowner, you are likely to see continued gains in your home equity but not at the rates you are used to. If you are an underwater homeowner (owing more than your home is worth) and counting on rising home values to help you qualify for refinancing, you may not reach your goal in time to get sufficiently low rates.
As an average home seller, you should still have a favorable market. Prices are still rising and inventory is still tight. While both situations are moderating, 2017 is likely to continue to be a seller's market. However, individual geographical markets and segments of markets will vary greatly. Starter homes are still likely to be in short supply.
As an average homebuyer, you have probably seen the last of sub-4% interest rates, but in historical contexts, rates are still relatively low and should stay that way throughout 2017. Depending on your market, it may still be a challenge to find an affordable home that meets your needs, but at least interest rates should moderate and looser credit may make it easier for you to find suitable financing. Try not to fall into the trap of buying more home than you can afford.
Whatever your place in the housing market, we hope that your housing transactions work out well for you in 2017 — and in all the years beyond.
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