2016 was a hot year in the real estate market with low inventory, high demand and historically-low mortgage rates throughout the majority of the year. With mortgage rates on the rise, experts are predicting what will happen with affordability, home prices, inventory and sales speed in the new year.
Mortgage rates will continue to increase.
In the last two months of 2016, mortgage rates have reached yearly highs, and the experts aren’t expecting rates to go down in the new year. The general consensus amongst the experts is that volatility will continue for a few months leading into the new year and 2017 will end with the 30-year fixed mortgage rate somewhere no lower than 4.5 percent and no higher than 5 percent.
At their December meeting, the Fed moved to bump the federal funds rate target range. While the federal funds rate isn’t directly linked to mortgage rates, it’s likely rates will see an eventual uptick with ARM rates reacting first.
Inventory will continue to outstrip demand.
While the 2016 October existing home market had its biggest month of sales in nearly a decade, inventory had its 17th consecutive annual decrease, according to Housing Wire. Existing home inventory stood at a 4.3-month supply, falling even further from the 6-month supply needed for a balanced market.
Even though new home construction surged 25.5 percent in October, experts are saying that existing home inventory will continue to be a huge risk factor in shaping 2017’s market, especially amongst entry-level homes. With rising interest rates, (would-be) move-up buyers may not feel incentivized to move out and buy up.
Millennials will continue to enter the market.
Nearly half of today’s homebuyers are under the age of 35, meaning Millennials make up the largest generational percentage of homebuyers. The National Association of Realtors has downgraded their prediction of millennial market share to 33 percent of the buyer pool due to rising mortgage rates.
While Millennial homebuyers are surpassing some of the generational trends of their predecessors, like skipping over traditional starter homes, Lawrence Yun, chief economist of the National Association of Realtors, says that “it’s essential that there’s enough new and existing supply at entry-level prices for them [Millennials] to reach the market.”
Affordability will lessen but home price growth will slow.
Home prices have rebounded astoundingly in 2016, posting a 6 percent year-over-year gain in the third quarter, according to the Federal Housing Finance Agency (FHFA) House Price Index. The general consensus of industry experts for 2017 home prices is anywhere from 3 to 5 percent. That National Association of Realtors expects home prices to slow to a 3.9 percent growth rate.
Economics 101 says high demand + low inventory = higher prices. Add in rising mortgage rates and home affordability is significantly less, even if those mortgage rates are still low on a historic level. Acting sooner than later is in the best interests of any homebuyer.
Homes on the market will sell quickly.
In 2016, a typical home stayed on the market for 52 days, which is the shortest time frame recorded since 2009, according to Redfin. Redfin predicts that the 2017 market will move even faster due to increasing demand.
If you're interested in getting out of the rental market in 2017, download our free Mortgage 101 Handbook for everything you need to know about purchasing your first home.