New Year’s resolutions for many Americans might include taking a leap in the housing market, whether it be buying, renting, or selling a home. Identifying possible behaviors of the real estate market in 2017 can help those entering the real estate market make informed and timely decisions. Predictions show that competition for affordable homes will be fierce this year due to increasing numbers of home buyers who are on the hunt for affordable homes that just aren’t as readily available as they used to be. Knowing these trends can give renters and buyers the upper hand in a competitive market. Here are some other factors that are shaping real estate in 2017.
1. Finding value in older construction
While new homes are desired by many, it could be advantageous to look at older construction that could be remodeled, giving buyers the opportunity to incorporate features that fit their preferences. There is also potential to save money by going with an older construction, especially since the price of new construction is going up.
Lately, homebuyers can’t seem to staff enough construction workers to complete jobs. In fact, the National Association of Homebuilders estimates that there are roughly 200,000 unfilled construction jobs in the U.S., which is a jump of 81 percent since 2014. Areas of the U.S. that were hit hard by the housing market crash saw a significant decline in the number of construction workers available for employment. Now, homebuilders find it hard to convince these skilled workers to return to the industry.
This labor shortage is increasing builders’ costs, worker’s wages, and slowing down construction. The time it takes to develop homes is increasing since the demand for workers is growing. Since costs are increasing, developers are pressured to focus on high-end jobs in order to make up for their losses. Meanwhile, contractors are eager to dive into renovation projects for buyers who take on a remodel.
2. Millennials will enter the housing market
Older millennials are now in their early 30s and are looking to settle down and buy their first home. In fact, Realtor.com’s annual survey of potential home buyers shows that 78 percent of first-time home buyers will be in the 25-34 age group in 2017. This large percentage of millennials in the first-time buyer category means that competition for affordable homes will be aggressive, especially in the suburban housing markets. Numerous studies have shown that millennials are attracted to the suburbs more so than large cities due to the availability of well-paying jobs. So it may be worthwhile for buyers to expand their search to urban areas where there may be more options and less competition.
3. Housing inventory will decrease
According to the Realtor.com 2017 National Housing Forcast, housing inventory is down by about 11 percent in major metropolitan housing markets, and this percentage is not expected to increase in 2017, which will mean fewer options for buyers.
The reason for low inventories of homes across the U.S. is thought to be due to several circumstances. First-time home buyers from roughly five years ago are now eager to move out of their starter homes and into the next level home. Unfortunately, these homeowners are discovering that those next-level homes are unaffordable. Their homes are not going back on the market, contributing to a decrease in inventory. Additionally, homeowners who purchased their home before the housing market crash now owe more on their houses than what they are worth. This prevents another category of homes from going back on the market.
Continued low inventory, coupled with an increasing demand, isn’t doing home prices any favors. Home prices have steadily been on the rise, which have increased by an astonishing 8.2 percent.
4. Mortgage rates are on the rise
Mortgage rates are still relatively low and it’s a prime time to enter the housing market. However, rates are beginning to climb, so buyers may want to get pre-approved as soon as possible. According to the Federal Reserve’s recent indication, there will be three more rate increases in 2017. The Mortgage Bankers Association (MBA) predicts the following rates for 2017 by quarter: Q1= 3.9%, Q2=4.1%, Q3= 4.3%, and Q4= 4.4%. Continued mortgage rate increases could lead to ‘rate lock,’ causing homeowners to be hesitant to sell. As rates steadily increase throughout 2017, it will be more beneficial for buyers to make their move in the winter or early spring before mortgage rates get any higher.
5. Home appreciation will slow down
Home appreciation is expected to slow down in 2017, but it is not expected to stop altogether. The Realtor.com Housing Forecast predicts that home prices will grow by 3.9 percent annually, compared to an estimated 4.9 percent in 2016. This can be seen as a positive trend for 2017 since continual appreciation for too long can lead to a market bust similar to what we experienced several years ago. Despite some of the other trends that are increasing the price of homes, this trend will help to stabilize prices.
Due to a shrinking pool of available homes and increasing mortgage rates, buyers who intend to enter the housing market in 2017 would benefit from doing so sooner rather than later. They also might want to consider expanding their search or exploring non-traditional options like renovations. Depending on circumstances, renting may be a viable option as well.