Though we haven’t yet flipped the page to December, the calendar keeps inching closer to the new year — and inauguration day. This makes for a spirited November, aka the start of 2017 forecast season.
We’ve heard about President-elect Donald Trump’s plans for loosened lender regulations, potential impact on mortgage rates (which economists say were on their way up, anyway) and sprawling infrastructure plan, along with what Chinese investors are thinking about the upcoming shift in American leadership.
Today, Zillow jumped in with six predictions for next year’s housing market, touching on some of the more nuanced factors that influence who will be buying and selling homes next year, where they’ll be focused and what challenges they stand to face.
Speculation from the real estate giant also brought up the potential effect of Trump’s hard-line immigration plans on construction industry labor — and its expectations for America’s historically low homeownership rate.
Zillow’s 2017 predictions
1. “Cities will focus on denser development of smaller homes close to public transit and urban centers.”
Last week economist John Burns also pointed to development happening in certain parts of California reflecting the “surban” movement (when urban and suburb collide), in which revitalized suburban downtowns are starting to authorize new housing. (Read more about the Pacific Union forecast in full).
2. “More millennials will become homeowners, driving up the homeownership rate. Millennials are also more racially diverse, so more homeowners will be people of color, reflecting the changing demographics of the United States.”
According to the National Association of Realtors, in 2015 first-time buyer purchases hit a 30-year low of 32 percent.
Zillow says nearly half of all buyers were first-time buyers in 2016. (NAR’s most recent Profile of Home Buyers and Sellers reported an uptick to 35 percent in 2016, the highest since 2013, while NAR also said that those under 35 made up 61 percent of first-time buyer transactions this year.)
NAR Chief Economist Lawrence Yun explained the potential rebound in a statement: “Young adults are settling down and deciding to buy a home after what was likely a turbulent beginning to their adult life and career following the Great Recession,” he said.
Added Yun, “Even with the affordability challenges many buyers face, the allure of homeownership is not lost among the younger generation.”
3. “Rental affordability will improve as incomes rise and growth in rents slows.”
This is supported by the Urban Land Institute’s October 2016 Real Estate Consensus Forecast, which noted that apartment rental rate growth is expected to moderate in the next three years to 3.5 percent in 2016, 3.0 percent in 2017, and 2.9 percent in 2018, but remain above the 20-year average growth rate of 2.8 percent.
“Renters should have an easier time in 2017. Income growth and slowing rent appreciation will combine to make renting more affordable than it has been for the past two years,” said Zillow’s chief economist, Dr. Svenja Gudell, in the release.
4. “Buyers of new homes will have to spend more as builders cover the cost of rising construction wages, driven even higher in 2017 by continued labor shortages, which could be worsened by tougher immigration policies under President-elect Trump.”
“There are pros and cons to both existing homes and new construction, and the choice for homebuyers can often be difficult,” Gudell said.
“For those considering new construction in 2017, it’s worth considering the added cost that may come amidst ongoing construction labor shortages that could get worse if President-elect Trump follows through on his hard-line stances on immigration and immigrant labor.
“A shortage of construction workers as a result may force builders to pay higher wages, costs which are likely to get passed on to buyers in the form of higher new home prices.”
5. “The percentage of people who drive to work will rise for the first time in a decade as homeowners move further into the suburbs seeking affordable housing — putting them further from adequate public transit options.”
Affordability has been one of the top challenges facing homebuyers in 2016, fueled by rising home prices.
“Those looking for more affordable housing options will be pushed to areas farther away from good transit options, in turn leading more Americans to drive to work,” said Gudell.
At the California Association of Realtors’ Real Estate Summit, “Housing Affordability and California’s Future,” Carol Galante, faculty director of the Terner Center for Housing Innovation, suggested that accessory dwelling units (ADUs), which are studios or small housing units next to main homes, could be one creative solution to California’s lack of inventory. This idea may have broader applications for the rest of the country.
These types of units allow for what some call “invisible density,” or additional housing stock that doesn’t change the way single-detached housing blocks look from the street.
6. “Home values will grow 3.6 percent in 2017, according to more than 100 economic and housing experts surveyed in the latest Zillow Home Price Expectations Survey. National home values have risen 4.8 percent so far in 2016.”
The possible slowdown in home price growth will be welcome relief for buyers, and could indicate phase two of the post-Recession market.
“In 2017, recent trends will reverse course as the housing market’s economic recovery enters a new stage,” Zillow noted in the release.
Zillow Home Price Expectations Survey asks more than 100 leading economists, real estate experts and investment and market strategists to predict the path of the Zillow Home Value Index over the next five years, according to the company. Zillow also sponsors the bi-annual Zillow Housing Confidence Index (ZHCI), which measures consumer confidence in local housing markets, both currently and over time.
Dr. Gudell and her team of economists and data analysts produce the housing data and research covering more than 450 markets at Zillow Real Estate Research, Zillow says.