The one certain thing about the U.S. housing market in 2017 is higher mortgage rates, and that is a big factor for many prospective buyers. But that’s just one driving force in a year that will see a new White House administration headed by President-Elect Donald Trump.
Here are some of the housing market’s positives and negatives looking ahead to 2017:
Negative: Mortgage Interest Rates
Since the presidential election in November, mortgage rates have surged. The climb in the 30-year fixed mortgage had already begun even before the election. Since late October, the average 30-year rate has moved from 3.47 percent to 4.32 percent, boosting the monthly payment on a $200,000 mortgage by $97.
Lawrence Yun, chief economist of the National Association of Realtors (NAR), projects that the 30-year rate will increase to about 4.6 percent by the end of 2017. Such a jump would add another $34 to that monthly mortgage amount based on the $200,000 mortgage.
Recently, the NAR reported that pending home sales dipped in November to their lowest level in nearly a year , as those climbing mortgage rates and tight inventories discouraged would-be buyers.
Positive: Sales of Existing Homes
Existing sales are expected to close out 2016 at a pace of about 5.42 million, which will surpass 2015 (5.25 million) as the highest since 2006 (6.48 million), according to the NAR. In 2017, sales are forecast to grow roughly 2 percent to around 5.52 million — as long as mortgage rates don’t zoom higher than expected. The national median existing-home price is forecast to increase about 5 percent this year and 4 percent in 2017. The impact of higher rates will be partly neutralized by stronger wage growth as a result of the 2 million net new job additions expected next year, says the NAR’s Yun.
Positive: Home Prices and Fewer ‘Underwater’ Homeowners
There was a four-month inventory of homes nationally in November, according to Realtors group. That’s not too far from what is considered a healthy inventory: six months worth or more. These tight supplies across the nation has slowed but has also helped push home prices up for homeowners who can use the added equity, more than eight since the housing market collapse created a sea of “underwater” mortgage holders. These folks owed more in mortgages than the value of their homes. But home prices have risen a healthy 5 percent to 6 percent over the past couple of years. As a result of rising prices, the share of homeowners who are seriously “underwater” fell to 10.8 percent in the third quarter from 29 percent in 2012, according to ATTOM Data Solutions and RealtyTrac.
Uncertain: New Home Construction, Sales
Home builders remain confident, but much is riding on President-Elect Donald Trump’s “pledge to cut burdensome regulations that are harming small businesses and housing affordability,” says NAHB Chairman Ed Brady, a home builder and developer from Bloomington, Ill. A recent NAHB study shows that regulatory costs for home building have increased 29 percent in the past five years. Housing starts are estimated to increase 10 percent from 1.18 million this year to about 1.3 million in 2017, according to a survey of 53 economists by Blue Chip economic Indicators. That’s still short of the 1.5 million that is considered a normal market.