Here Come Housing’s Headwinds in 2017

Under a backdrop of rising mortgage rates and shrinking consumer confidence, expect modest gains in existing-home sales in the new year, according to the National Association of REALTORS®’ 2017 housing forecast, released Wednesday.

The decline in affordability in many parts of the country is taking a toll on the public’s outlook about their housing market, says Lawrence Yun, NAR’s chief economist.

“Rents and home prices outpacing incomes and scant supply in the affordable price range has been a prominent headwind for many prospective buyers this year,” Yun says. “Making matters worse, the unwelcoming reality of higher mortgage rates since the election is likely further holding back confidence. Younger households, renters, and those living in the costlier West region — where prices have soared in recent months — are the least optimistic about buying.”

Still, a majority of more than 2,700 households surveyed by NAR say now is a good time to buy a home, but consumer confidence has retreated significantly among renters. Fifty-seven percent of renters say now is a good time to buy, down from 68 percent a year ago. Meanwhile, 78 percent of homeowners say now is a good time to make a home purchase.

Despite this year’s dip in buyer enthusiasm, existing-home sales are expected to close 2016 at 5.42 million, 3.3 percent more than 2015 and making it the best year since 2006 (6.47 million), NAR reports. Sales in 2017 are forecast to grow by about 2 percent and reach 5.52 million.

“Although the economy is expected to continue to expand with around 2 million net new job creations, existing home sales are expected to see little expansion next year because of affordability tensions from rising mortgage rates and prices continuing to outpace income growth,” says Yun.

The national median existing-home price is forecasted to rise around 5 percent this year and by 4 percent in 2017.

Met with rising home prices, home buyers will also see higher mortgage rates in the new year. Mortgage rates are expected to jump to about 4.6 percent by the end of next year. The higher mortgage rates could also slow the pace of homeowners listing their homes for sale, NAR notes.

“Some would-be sellers may be reluctant to move up or trade down — especially if they’ve refinanced in recent years,” Yun says. “That’s why it’s extremely necessary for home builders to step up their production of homes catering to buyers in the affordable price range. Otherwise the nation’s low homeownership rate will struggle to shift higher in 2017.”

Nevertheless, there are some silver linings in the look ahead. Yun predicts buyer demand will stay strong for the most part due to continued job growth and more millennials reaching their prime buying years. Plus, the share of households believing the economy is improving increased to 54 percent in the fourth quarter and is at its highest level since NAR’s survey debuted a year ago. The most optimistic about the economy are those under the age of 44, living in urban areas, and having higher incomes. 

Source: National Association of REALTORS®

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