Five Housing Predictions for 2017

With 2017 approaching fast, many homeowners and potential homebuyers are wondering what the year will bring. And, frankly, we were wondering the same thing. With a new President getting sworn in, how will the new administration affect the 2017 housing market? As far as major policy changes, the new administration has three that could definitely affect the real estate market here in the U.S. They are immigration policy changes, tax cuts, and a new infrastructure spending policy. All of these could end up affecting both mortgage rates and new construction.

Home sales will be growing in 2017, thanks to a slight increase in the total homes for sale, strong buyer interest, and better credit access, however not nearly to the extent that they grew in 2016. Growth in home prices will basically be holding steady, but homes will be selling faster in 2017 than they did in 2016. In fact, they’ll probably break the record for the real estate market that was the absolute fastest. And, more houses are expected to be built in the second-tier cities in spite of the upcoming immigration policy changes. In addition, millennial homebuyers are expected to move from coastal communities to inland markets that are a bit smaller but offer starter homes that are much more affordable while also meeting the aesthetic requirements that they are looking for.

So, taking all of these things into consideration, we put together a consensus of five main housing market predictions for 2017 from Redfin, Zillow, Realtor.com, and Trulia:

Access to home loans will increase for more homebuyers

For the very first time in ten years, beginning in 2017, the mortgage giants that are government-sponsored, like Freddie and Fannie, will be backing higher mortgages. In fact, those average loan limits will be increasing from $417,000 to $424,100 in the majority of U.S. regions. In the more expensive housing markets, allowable loan sizes will increase from $625,500 to $636,150. These changes should make it simpler for more homebuyers when qualifying for mortgages in the higher-priced markets. Plans for privatizing Freddie and Fannie are part of the Trump Administration’s recent plans. However, the proposed changes are not expected to have any effect on the mortgage market until 2018. The FHA is also on sounder financial footing, so there is a strong likelihood that FHA fees will be lowered as well. FHA fees make it more expensive for the purchasing of homes by first-time homebuyers since they have to pay a one-time fee of 1.75% of the mortgage amount upfront.

Mortgage rates will be increasing in 2017, but not by much

Mortgage interest rates are expected to increase, however, they will only go as high as 4.3 percent for a 30-year fixed rate. So far, the rate for a 30-year fixed mortgage saw an increase from 3.5 percent at the close of the month of October to just above four percent after the presidential election. The recent rate increase is mainly attributed to optimism on Wall Street regarding Trump’s proposed tax cuts and infrastructure spending increases. So, in a nutshell, Wall Street anticipates increased inflation and economic growth in 2017, as well as a reshuffling from bonds to stocks. And generally, when investors are buying fewer bonds, the bond prices start falling and that results in higher mortgage rates. However, all in all, mortgage rates are still fairly low as compared to the historical averages, and expectations include those rates remaining lower than they were back in 2015 when the average 30-year fixed mortgage rate reached 4.5 percent.

Slowdown in new construction growth

In 2016, construction of single-family homes increased by nine percent, however, it is still lower than the average historically. That is mainly due to labor shortages and, since 25 percent of construction workers are foreign-born, the Trump administration’s stricter immigration policies could definitely make that problem much worse. Currently, the number of residential housing construction workers is a whopping 40 percent lower than when new construction was at its peak in 2006. Projections show that construction growth could end up slowing down to six percent in the event that those policy changes become effective in 2017. Unfortunately, this could end up affecting the affordable starter home availability. That means that first-time homebuyers would be paying higher prices.

Strong sellers’ market

The majority of economists thought that overall 2017 would be continuing to be a strong sellers’ market. They are expecting levels of inventory to rise and for sellers to start discovering that it takes a bit longer to sell. However, demand will overtake supply when the job market continues on a tightening path. The chief economist at Zillow stated that most of the markets will be skewing toward sellers. In fact, in the Midwest, the sellers’ markets beat the buyers’ markets even in comparison to their own history. And, at realtor.com, their chief economist said that geography will play a major role in the housing predictions.

Real estate commissions continuing to fall

This could prove to be bad news for brokers and agents, but alternative real estate brokerages are becoming more commonplace every day. As a result, people will be paying less in commissions in 2017. In 2016, a Redfin survey that included 2,000 homebuyers and sellers showed that the majority of sellers received a discount on their broker commissions as did close to half of the buyers. This represented a major increase over 2015 when just 37 percent of buyers received a refund of $500 or more.

There are growing numbers of companies that are offering money-saving methods for buying and selling homes. It is expected that more consumers will be adopting these approaches in 2017. In addition, it is anticipated that individuals who are using traditional brokerage services for buying or selling will be negotiating their agents’ commissions. In either case, the result could very well be more buyers and sellers saving a lot more on their real estate fees.

Politics will also be playing a bigger role in the 2017 housing market than they ever did during past years. Proposals by the Trump administration will surely be shaping the 2017 housing market in the midst of stronger buyer demand, as well as mounting pressures regarding affordability, higher mortgage rates, and home prices.