While there are still many unknowns as to what impact a new administration will have on the real estate market as the policies that affect our economies are still being formed, here is a broad overview of what you can expect if you are buying or selling a home in the year ahead:
Interest rates will be on the rise – There has been a rise in interest rates over the last few weeks and the Federal Reserve just raised the short term interest rate at their December meeting which should impact mortgage rates. It would not be surprising to see interest rates closing in on 4.75% by the end of 2017.
The inventory challenges of years past will not disappear in 2016 – There is a five million unit deficit in new housing units which is not expected to lighten up until at least mid-2018. Inventory will still be a challenge in 2017 which is great for sellers who are buying in a lower-demand price point, buying a housing product that is in lower-demand, or buying in an area with lower-demand.
The best time to invest is still right now – With the lack of inventory and prices and interest rates on the rise, your real estate investment dollar will likely buy you more today than it will tomorrow.
2017 REAL ESTATE PREDICTIONS
Let's review what has happened during the previous year and try to predict what is in store for real estate in 2017. Below are some predictions for the 2017 real estate market, based on data that was available at the time this was written:
Median Sold Prices – Home prices will continue to increase nationally by single digit numbers, about 5%. However, urban metro areas with high employment or that are in high demand by Millennials may still see increases at 10% or above. According to the National Association of REALTORS®, October’s national median price for existing single family homes was $232,200, which represented a 6.0% increase over October of 2015 (which was the 56th consecutive month of year over year gains). Locally, Quarter 3 of 2016 saw a median price of $301,300, which represented a 3.45% decrease from Quarter 2. National inventory shortages coupled with high demand will continue in 2017.
Housing Inventory – Although there are improvements in this category, it will take more than just a year for the situation to turn around. Our inventory shortage was caused by a shortage of housing starts that began during the recession. We will continue to see inventory challenges until new construction picks up even further. I predict that more buyers will be entering the market for a home as our economy is strong with low unemployment. According to the Bureau of Labor Statistics, the national unemployment rate stands at 4.6% for November, 2016, which is the lowest it has been since August of 2007. On the local scale, the unemployment rate for Washington State in November, 2016 was 5.3%. High demand and low new construction means a continued inventory crunch.
Housing Starts – National Housing starts (the measure of homes that began construction) jumped from 900,000 in 2015 to 1.3 million in 2016. Within the western region of the country, which includes Washington state, there was approximately 268,000 starts in November, 2016 alone. Although this is a welcome increase, it is still not enough to quench the demand. Our country needs about 1.5 million new starts per year to maintain inventory, but since 2009, we have been short a cumulative 5 million units. This is one of the primary causes of our inventory shortage and what is driving prices up – demand outweighs supply. In 2017, I predict that builders will finally surpass the 1.5 million start target and our inventory shortage will begin to wane by mid-2018.
Second Home Markets – Investment and vacation homes markets will continue to be strong in 2017. The passing of wealth from the Silent Generation (1925-1945) to the Baby Boomer Generation (1946-1964) is a strong driver of vacation home purchases. Investment properties are a hot commodity, especially in urban areas where rents are skyrocketing due to a shortage of housing.
Interest rates – The improving economy and almost full national employment is a sure sign that interest rates will continue to increase in 2017. The new rates will balance job growth and higher inflation rates. The Federal Reserve increased interest rates a quarter of a percentage point at its December meeting. The federal fund rate has a significant effect on mortgage rates. I expect the 30 year fixed rate mortgage rate will reach 4.75% by the end of 2017.
I am excited for the opportunities that lie ahead in 2017 and welcome the opportunity to discuss the state of your current real estate investment(s)! Call or text me: (206) 730-3955 or send an email to: rodericko1@hotmail.com.
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