With a new U.S. president from a different political party taking office in 2017, few are expecting federal policies to remain as they have under prior leadership. The incoming president has a deep history in real estate development and has shown a strong interest in funding massive infrastructure projects, two points that provide intrigue for the immediate future of residential real estate.
After several years of housing market improvement, 2016, as predicted, was not a pronounced triumph but more of a measured success. Markets took a steady and mostly profitable walk from month to month. Even as supply was short and shrinking, sales and prices were often increasing.
Interest rates were expected to rise throughout 2016, but they did not. Just as happened in 2015, the Federal Reserve waited until December 2016 to make a short-term rate increase. Incremental rate hikes are again expected in 2017. An economy that shows unemployment at a nine-year low coupled with higher wages inspires confidence. Mortgage rates are not expected to grow by more than .75 percent throughout 2017, which should keep them below 5.0 percent. If they rise above that mark, we could see rate lock, and that could cause homeowners to stay put at locked-in rates instead of trading up for higher-rate properties. Such a situation would put a damper on an already strained inventory environment.
Sales: Pending sales increased 2.5 percent to 16,064 to close out the year.
Listings: Inventory was lower in year-over-year comparisons. There were 2,034 active listings at the end of 2016. New listings remained relatively flat to finish the year at 21,640. Low home supply is expected to continue throughout 2017.
Distressed: The days of a dominating foreclosure market appear to be well behind us. In 2016, the percentage of closed sales that were either foreclosure or short sale dropped by 2.0 percent to land at 8.4 percent of the market.
Prices: Home prices rose compared to last year. The overall median sales price was up 5.8 percent to $550,000 for the year. When inventory is low and demand is high, prices will rise. Prices should increase in most areas in 2017 but at a slower growth rate. Single-Family Detached homes were up 5.8 percent compared to last year, and Single-Family Attached homes were up 6.8 percent. We will likely need years of improved wage growth to account for recent price gains.
List Price Received: Sellers received 97.0 percent of their original list price received at sale, a year-over-year increase of 0.4 percent. Sales prices should increase again in 2017, leading to further increases in list price received.
Millennials continue to command attention as the next wave of home buyers, yet the rate at which this massive population is entering the market has been less than stellar. This may be due to a cultural change away from settling into marriage and parenthood until later in life, high student loan debt, or even reservations about a home being a wise investment in the wake of what the last recession did to their elders. That said, some have suggested that this group is simply willing to wait longer to buy, thus skipping the entry-level purchase altogether to land in their preferred home. At the other end of the age and price spectrum, baby boomers are expected to make up nearly one-third of all buyers in 2017. By and large, this group is not looking to invest in over-sized homes, yet we could see improvement in higher price ranges as a hedge against inflation and risk. Shifting wealth away from the stock market into valuable homes may be seen as a safer bet during a transition of power and a period of pronounced change.