Money Matters – What are the experts saying about the 2017 housing market?

 Last year was an unparalleled, somewhat volatile, and for many buyers and sellers, an agonizing year. The housing market was not immune to the year’s indiscretions.  At the start of 2016 the experts anticipated a huge increase in the building of new homes but instead builders are still not producing enough homes for the buying public. During this time home prices appreciated beyond any one’s expectations and to the point where large scale price reductions in specific price points had to occur to clear inventory in the 3rd quarter of 2016.  Here at the beginning of 2017 we are still seeing homes come on the market at, on average five to eight percent above true market value and are “sitting” on the market for a great deal longer than normal market times would dictate.  Mortgage rates also began to slowly increase over the course of the year, after hovering at record lows for the last few years.  Inventory also played an integral part of the turbulence associated with the housing market.  Huge swings in the inventory caused it to go from a seller’s market to a buyer’s market and then just recently back to a seller’s market.
The head economist of Zillow said this about 2016. “If the expectation was that the market would transition smoothly from deep red hot recovery to normal–that certainly didn’t happen.”
Most experts agree that 2016 was a good year for housing. National prices finally crossing the previous 2006 peak, mortgage rates (though climbing in the 4th Quarter) remained historically low and there were some signs that Millennials, a generation which some feared would never buy homes, are beginning to enter the market. Through it all of this the current election and the changes in power have laid a heavy hand on what will happen in the housing market in this coming year. What should we expect?
Housing experts expect the following to happen in 2017:
Prices will continue to rise–but more slowly.
Prices rose every month last year with the largest gains coming in the later half and a 5.61 percent increase in the national average.  Experts expect prices will continue their climb, but gains will be much slower. The chief economist for REDFIN “believe(s) 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.”
Redfin predicts the median home sale prices to gain a robust 5.3 percent in 2017
But other prognosticators’ such as Zillow are forecasting the median home value to rise just 3.2 percent in 2017.
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.
Mortgage rates will be volatile but will continue going up.
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 and the expectation that the FED would raise rates had the opposite effect, sending rates above four percent.  Estimates out there for year-end 2017 range from 4.5 to five percent.
Credit availability will improve–maybe.
By and large early Trump administration priorities are not expected to deal directly with housing. However, the president-elect 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 banks to lend more freely to wide-range of would be buyers. 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. Economists though worry such a move would further restrict who could get credit to buy a home. In this regard getting a home mortgage is going to get increasing more difficult and costly.  Fannie Mae’s new loan program to increase what they are calling the efficiency, i.e. getting a loan approval in a quicker time period – the borrower must give them their User Id’s and Passwords to the bank accounts that they will be suing to verify funds!
Supply will improve but remain short.
As discussed previously declining inventory was without a doubt the defining feature of the housing market in 2016. It led to price appreciation, as well as a hyper fast market for buyers and discouraged would-be-sellers who feared entering the buying fray. A complete turnaround is unlikely in 2017, but there are some signs the coming year could see a small bump in housing supply–at least on the new home front and with re-sales as sellers realize they actually have equity in their home!
More Millennials will become homeowners–and renters.
Per the experts at Zillow half of all buyers in 2017 will be under the age of 36.  Not every economist agrees with this assessment, however it is clear that Millennials will continue to make up a large and growing portion of the buyer pool.  Of course, much of this is since Millennials–adults born after 1980–are now the largest adult generation and make up the greatest percentage of the workforce. Redfin expects millennial homebuyers will move from the coasts to “inland markets” where starter homes are more affordable. We have seen this first hand with both my son and his friends, that are in their late 20’s leaving California and moving to “Middle America” but taking their California Incomes with them.
Competition will grow fiercer.
In 2017 seller’s will maintain the edge over buyers 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, though right now that is simply not the case.
Political uncertainty will be replaced with policy uncertainty.
Experts agree that three of President-Elect Donald Trump’s policy priorities could meaningfully impact the housing market: his pledges to spend more on infrastructure, to cut taxes and to crack down on immigration. The consensus is that in the very short term any moves in these three areas could have a neutral-to-positive impact on the housing market.
For more information, please call Douglas J. Sedam at 1-866-549-3900, 661-295-2400 #1 or email: Doug.Sedam@ThePaseoGroup.com.  You may also learn more at www.ThePaseoGroup.com.
Securities and Investment Advisory Services offered through Financial West Group which is a member FINRA/SIPC. OSJ Office: 4510 E. Thousand Oaks Boulevard, Westlake Village, CA 91362, Phone: 1-866-502-8929 The Paseo Financial Group, Inc. and Financial West Group are unaffiliated companies. The Paseo Financial Group, Inc. encompasses the following companies: The Home Loan Pros – Residential, Investment, & Commercial Real Estate Mortgages; Oak Tree Realty – Residential, Investment, & Commercial Real Estate Sales; and The Financial Services Pros – Investments, Insurance, & Retirement Planning.