6 Realtor.com Housing Trend Predications For 2017

While a Realtor in California struggles to find affordable housing for a millennial buyer as inventory flies off the market, a listing agent in Florida might be dedicating extra hours to battle price depreciation in a seller’s neighborhood.

That’s because real estate is local, and drilling down to the factors that shape regions, cities and neighborhoods add nuance to the national picture.

One of the latest 2017 housing predictions comes from realtor.com. It gives a macro take while sprinkling some metro-level texture (including the hottest region for millennials right now and where prices will continue to climb the most) into the company’s demographic, market movement and economic expectations.

Jonathan Smoke

“We don’t expect the outcome of the election to have a direct impact on the health of the housing market or economy as we close out 2016,” said Chief Economist Jonathan Smoke in the forecast report.

“However, the 40 basis points increase in rates in the days following the election has caused us to increase our interest rate prediction for next year.”

Here are the company’s predictions for the homebuying and selling environment in year to come, based on realtor.com’s own data and in-house analysis.

1. A moderate national market with dampened price appreciation

Realtor.com anticipates a slowdown period compared to the last two years, based on “the majority of economic indicators.”

Specifically, the company expects:

Home prices to increase 3.9 percent (compared to 4.6 percent in 2016)
Existing-home sales to grow 1.9 percent to 5.46 million homes
Interest rates to reach 4.5 percent driven by “higher expectations for inflationary pressure”
The homeownership rate to stabilize at 63.5 percent after 2016’s 63.9 percent low
New-home sales to grow 10 percent
New-home starts to increase 3 percent

And with regard to the economy, realtor.com predicts:

GDP growth of 2.1 percent
A 2.5 percent increase in the consumer price index
A decline in unemployment to 4.7 percent by the end of 2017

2. Lower first-time buyer turnout driven by higher mortgage rates than originally projected

“Prior to this month’s election, demographics and an improving economy were laying the foundation for a substantial increase in first-time buyers in 2017, but due to mortgage rate increases over the last few weeks realtor.com predicts first timers will face new hurdles as they navigate the qualification and buying process,” the company said in the report.

“These higher rates are associated with anticipation of stronger economic and wage growth next year, both of which favor buyers. However, higher rates will make qualifying for a mortgage and finding affordable inventory more challenging.”

3. Millennials and baby boomer buyer pool dominance

These two groups will drive buyer demand for the next decade, realtor.com predicts, calling them “massive demographic waves.”

Many millennials are now in their prime homebuying years, but the onset of rising interest rates have lowered realtor.com’s market share prediction for this demographic to 33 percent.

“With more than 95 percent of first-time home buyers dependent on financing their home purchase, and a majority of first-time buyers reporting one or more financial challenges, the uptick we’ve already seen may price some first-timers out of the market,” Smoke added.

Boomers, who are “less dependent on financing,” will comprise 30 percent of 2017 buyers and are most likely to make it to the closing table, the company noted.

4. Millennial buyer madness in the Midwest

The following cities lead the pack in millennial purchase share, where the combined average is 42 percent, compared to 38 percent in the rest of the country:

Madison, Wisconsin
Columbus, Ohio
Omaha, Nebraska
Des Moines, Iowa
Minneapolis

Because 15 of the 19 largest Midwestern markets get good marks in affordability, this trend is expected to continue into 2017.

5. Continued inventory struggles

In the nation’s top 100 metros, inventory is down an average of 11 percent.

“The conditions that are limiting home supply are not expected to change in 2017,” says realtor.com.

6. Home sales party in the West (if you can afford it)

The wild West coast will continue to be a real estate hotspot with leading prices and sales, the company anticipates.

Metros in this region are forecast to experience a 5.8 percent uptick in prices and 4.7 percent rise in sales, with top markets such as Los Angeles, Sacramento and Riverside, California; along with Portland Oregon; and Tucson, Arizona; leading the way.

The company also predicted 2017’s top 10 metros, noting “despite a more moderate housing market overall … strong local economies and population growth will continue to fuel the nation’s top markets.”