This time last year most economic experts were predicting a flat year for real estate. Many that did see continued growth predicted it would be hyper-localized and that overall, this year would prove a cooling one for the housing market. But what actually happened was 2016 turned out to be another hot year for real estate.
In fact, sectorwide growth was seen across nearly every important real estate metric, from home values and home prices to actual sales. Many of these enjoyed their strongest numbers since the Great Recession of 2008.
Fueling that growth was the continued trend of low mortgage rates. Rates remained near record lows throughout the year. However, with the recent unexpected election results, there’s no guarantee that the real estate market will continue to favor buyer, sellers and borrowers.
So it’s certainly fair to ask: What’s going to happen in 2017? Should I look to buy or sell now, or wait? Let’s hear takes and market forecasts from several industry experts.
How Much Are Home Prices “Back”?
But before we get to these predictions, let’s more closely examine what’s going on with housing prices nationally.
Again, despite most experts prognosis, home prices posted another year-over-year gain. Based on the tracking of over 90.6 million single-family homes and condos in the U.S. tracked by real estate data firm ATTOM Data Solutions, almost the entire housing market is back to or has exceeded pre-recession highs.
The national median home price for single-family homes and condos was $226,500 midway through 2016. That was up a healthy 7% compared to last year. It also represented the 53rd consecutive month with a year-over-year increase.
How close is this to pricing prior to the recession? According to Daren Blomquist, senior vice president for ATTOM Data Solutions, it’s almost equal, only a half percent off from their peak in July 2005. But let’s zoom in on other market indicators that might tell a different story.
“The strong national sales price numbers mask a shift in the market where we are seeing home price appreciation weaken in some previously high-flying and high-priced markets while continuing to strengthen in some of the secondary markets,” says Blomquist.
In other words, experts were actually right about the increased localization of the real estate market. Let’s take NorCal for example. In July, home prices in San Jose and San Francisco were each up 5%. But San Jose was actually off 16% from 2015 numbers. And San Francisco was off by a whopping 32% rate of appreciation seen in July 2013.
Elsewhere, some local markets kept trending upwards. Portland, Denver and Seattle were all well above 2015 numbers. Still, Redin’s chief economist Nela Richardson thinks that real estate sales prices are decelerating.
“After several years of steady and steep price growth, we are seeing indications that price growth is slowing and the market is normalizing,” says Richardson. “Redfin housing market data indicate that home prices in August rose just 4.4% compared to 2015 — the slowest pace of the year.”
While The Housing Market Finallay “Normalize”?
Stop me if you’ve heard this one before. Richardson predicts 2017 will see a return to a more normal housing market, meaning a healthy number of total sales complemented but also controlled by, cooling price growth.
“According to a recent survey of Redfin agents, 54% predict prices will rise somewhat next year and 36% predict prices will level off,” says Richardson.
Rick Sharga is the executive vice president of Ten-X (previously Auction.com). He also believes that home price appreciation is likely to be lower than previous recent years, “although we’re still likely to see at least a 3 to 4% year-over-year increase,” he says.
“In 2017, we’re also projecting another modest increase in total home sales,” Sharga continues. “However, three headwinds continue to challenge the housing market’s recovery — tight credit, limited inventory, and rising prices, which are beginning to create some affordability problems in certain markets.”
Home Appreciation Likely To Slow
When asked for a number, Blomquist predicts that home appreciation will slow nationally to approximately 5% at the six month market and even further at 12 months, to only 3.5% growth.
“Based on bellwether markets across the country, where sales volume has been decreasing often for several months, I would expect sales volume nationally also to slow down in 2017,” says Blomquist.
“That slowdown could be accelerated by rising mortgage rates,” he says, “but even without rising interest rates I think enough markets are now hitting affordability and inventory constraints that demand will slow down. And as demand slows, inventory will gradually increase in 2017.”
On the other hand the regional vice president/branch manager for CrossCountry Mortgage, Brian Guth, predicts a small dip in property values over the next six to 12 months.
“But real estate, for most people, should still be thought of as a long-term hold with a great tax write-off, forced savings plan, and long-term appreciation,” Guth says. “My home has doubled in value since I purchased it in 2002, even though it was hit very hard in 2009.”
As the market sees an increase in much needed inventory, especially of more moderately priced homes, Colby Sambrotto, president of USRealty.com, thinks prices will actually increase in 2017
“There’s a lot of demand right now for moderately priced houses that appeal to both first-time buyers and baby boomers who want to be in a right-sized house for aging in place. Across the country, most markets don’t have enough houses at or just below the median price in that market,” says Sambrotto.
What About Rents And How Do They Influence Home Buying?
So what is the overall takeaway? Even the most pessimistic take on the state of the market would indicate it’s a wise time to think about purchasing a home. A mortgage rate increase was all but certain this month, but recent events have put that into question. Bottom line: “Mortgage interest rates remain low and housing price are rising.”
“I think it’s still a great idea for first-time buyers to purchase now, because most are paying high rents and need the tax write-offs that come with owning a home,” says Guth.
Richardson also agrees that all time low rental affordability is a driving factor for pushing first-timers into the market.
“With rates at historic lows, buyers may be able to find a home with a monthly mortgage payment that is less than or equal to rent,” she says.
Richardson adds, “The conditions that challenged first-time and millennial homebuyers this spring are starting to ease. There are fewer bidding wars and less of a need to escalate significantly above the list price to get an offer accepted. And the pace of the market is also slowing, which helps buyers since they can now afford to be more patient.”
Should I Wait For Another Market Downtick?
Blomquist adds a caveat to the “buy now” mindset. Make sure you’re thinking of your home as a as a long-term investment and plan to stay there a bare minimum of three, but ideally at least five years before having to move.
“It’s probably not the best time if you are counting on your home value going up by another 20 or 30% in the next three years,” says Blomquist. “The rock-bottom interest rates make it a good time to be a borrower, but I don’t expect interest rates to rise dramatically in 2017.”
“For first-time buyers seeking a place to live and possibly raise a family, it’s smart to have a long-term view on a home purchase,” says Sharga. “In many markets, prices are still below peak pricing from the boom years, so there are many markets across the country with excellent affordability.”
One thing that all of these conflicting opinions agree on, timing the market is almost impossible. So sitting on the sidelines and waiting to swoop in for a bargain in the next real estate crash isn’t a good strategy.
Even if home prices stay relatively flat versus inflation, it’s certain that mortgage rates will rise, decreasing your overall affordability. In other words, buy now or you’ll probably regret it later.
If you’re interested in buying or selling a Luxury Home in Los Angeles, please contact us now at 323-829-8811 or email Susan Andrews at susan@luxurylahomes.com.
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