Spring Housing Forecast
Overall, it seems that 2016 was a pretty good year for housing. National average prices continued to rise, mortgage rates remained historically low, and there were clear indications that millennials, a generation which some feared would never buy homes, were beginning to enter the housing market.
In many ways 2016 was an extraordinary and, for some, agonizing 12 months. The housing market was certainly not exempt from the year’s highs and lows. Early in the year, experts anticipated an uptick in building activity. Instead, builders were still not producing enough homes to match demand. Meanwhile, home prices appreciated well above expectations and mortgage rates flirted with record lows before passing 4% for the first time in two years.
Here are a few things you can expect to see in the housing market this spring and throughout 2017…
Prices will slowly continue to increase. Prices rose every month of 2016 through October, with the largest gains coming in the later half. There was a 5.61% price increase nationally. Experts expect prices will continue their climb into 2017, but gains will slow. Real estate companies, such as Redfin, expect the median home sale prices to gain 5.3% in 2017. While Zillow’s home value index rose 6.5% between November 2015 and November 2016, Zillow is forecasting the median home value to rise 3.2% between November 2016 and November 2017.
Affordability will vary.
Average salaries and 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 hindered many aspiring to buy their first home over the past few years, will be intensified by a continued shortage of low- to moderate-priced inventory, as well as rising mortgage rates. A decade ago, a disparity like this would not have been so apparent, because buyers could get subprime loans. But now, high credit is a requirement. The percentage of new listings in the lowest price tier of the market has declined nearly every month in the last five years. Experts agree that even if builders are more active this year, they are unlikely to significantly add to the starter home supply in 2017.
Supply will improve but remain low.
Declining inventory was a noticeable feature of the housing market in 2016. It led to price appreciation, as well as a hyper-fast market for buyers. It also discouraged would-be sellers that feared entering the buying fray. A complete turnaround is unlikely in 2017, but there are some signs that the coming year could see a small bump in housing supply.
Homebuilder sentiment picked up late last year, and strong demand should also encourage building. Construction, however, is unlikely to improve the affordability issue. There is a growing premium for new homes, and most building in recent years has been on the high-end, since builders feel they can get a better return there.
Mortgage rates will fluctuate.
When it comes to existing homes, a phenomenon known as “rate lock” may constrain inventory. Homeowners who have locked in a mortgage below 4% are likely to stay in low priced homes rather than upgrade- a pattern that last emerged when rates briefly rose in 2013. Homebuyers and mortgage refinancers had a nice run in 2016; mortgage rates fell below 4 percent at the beginning of the year, and the average 30-year fixed-rate mortgage was under 3.75 percent all summer, flirting with record lows. After the presidential election, rates quickly increased, and averaged out at 4.24 percent in December 2016. They then began 2017 above 4.25 percent. Forecasters believe mortgage rates above 4 percent are here to stay.
In many places across the United States, it continues to be a seller’s market, in which there are more potential homebuyers than sellers. In the hottest markets, sellers can expect to get multiple offers if they price their homes well. Many believe that higher mortgage rates may result in slower increases in house prices in the first quarter of 2017. This should help sales for the year, but the market will still remain favorable for sellers in most of the country.
January and February tend to have the lowest number of home sales, with March and April seeing a large increase in activity. The spring housing market in the U.S. is active, exciting and thriving. The current health of the market can often be indicated by statistics generated in March through May. Contact your local trusted real estate professional now if you’d like more information on the market in your area!