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Housing Outlook 2017

In so many ways 2016 was an unprecedented, volatile and, for some, excruciating 12 months. And the housing market was not immune to the year’s whims. At the start experts anticipated a pickup in building activity, instead builders are still not producing enough homes. Meanwhile, home prices appreciated beyond expectations and mortgage rates toyed with record lows before crossing 4% for the first time in two years. "If the expectation was that the market would transition smoothly from deep red hot recovery to normal--that certainly didn’t happen," says Svenja Gudell, chief economist at real estate data firm Zillow.

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

Prices rose every month last year (through October) with the largest gains coming in the later half and a 5.61% increase in national. Experts expect prices will continue their climb, but gains will slow. "We believe price increases will hold steady despite slowing sales growth, because homebuyer demand is stronger now than it was at the same time last year, and because we foresee a small uptick in homes for sale," notes Nela Richardson, chief economist at real estate brokerage Redfin.

 

2. Affordability will worsen.

Wages are expected to grow in America's big cities this year, but the share of homes affordable to someone earning the median income is not. This trend, which has stymied many aspiring to buy their first home over the past few years, will be intensified by a continued shortage in low- to moderate-priced inventory and rising mortgage rates. "The irony of the modern housing market is that the places where we are seeing wage growth are places where people can't live because they are too un-affordable. There is a mismatch," says Nela Richardson, chief economist at real estate brokerage Redfin.

 

3. Mortgage rates will be volatile.

The two major political events of 2016 set mortgage rates moving in opposite directions. In June, the British vote to exit the European Union put rates near a record low. In November, the U.S. election of Donald Trump had the opposite effect, sending rates above 4% for the first time in two years. By historic standards rates are still low. In 2017 experts expect movement, but differ on where for the 30-year fixed rate will land. Estimates out there range from between 3.75% and 4.6%--not so far from where it is today.

 

4. Credit availability will improve--maybe.

By and large early Trump administration priorities are not expected to deal directly with housing. However, the president and his team have made it clear that they hope to roll back much of the post-crisis financial regulation laid out in the Dodd-Frank Act. In theory, this could open up banks to lend more freely to wide-range of would be buyers using some Real Link plans. Though not everyone is convinced this type of lending is the direction banks would go with any new found freedom. Meanwhile, there is speculation that Trump would return government-controlled mortgage companies Fannie Mae and Freddie Mac to private control. Investors have cheered the possibility, but some housing economists worry such a move would further restrict who could get credit to buy a home.

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Uploaded on February 1, 2017