What 2017 trends are on your real estate horizon?

December 19th, 2016 8:16am
2017 will see a number of real estate trends.

The housing market is expected to expand further in 2017 if a recent National Association of Realtors report proves accurate. Despite rising mortgage rates and affordability challenges in some regions, a majority of Americans still believe buying a home is in the cards in the near future, and is a solid investment to make.

With that in mind, it's prudent for prospects to know what kinds of trends they may see in real estate next year and how they can best maneuver the market to their advantage. Let's took a look at what some of the largest publications and analysts have on the radar:

Prices will rise due to inventory shortage
It's no secret that the general trajectory of home prices has risen steadily in recent years. This is in part due to a solid recovery of the housing market from the depths of the Great Recession. It's also due to a lack of new construction in regions that need it most, which is rooted in the fact that many local and state officials have placed zoning, inventory and size restrictions on housing contractors and developers. This has had the effect of making it harder to get new construction off the ground in a timely and cost-effective manner at a time when populations are booming and the number of prospective buyers in the market are suffering from a crisis of confidence.

This pattern won't change in 2017, which is a boon for sellers but unfortunate to buyers who don't have as much wiggle room to increase their savings or earnings potential next year. If required down payments are higher, mortgages are more expensive and sellers are playing competitive buyers off each other, then it's no coincidence that real estate values would rise.

A report from CoreLogic pegged prices to increase 5.2 percent in 2017.

But home equity will increase as well
The flip side of the price inflation occurring in the marketplace is that existing homeowners now have a much more valuable asset on their hands. In some regions, home values have doubled in recent years, allowing homeowners to tap into much higher levels of equity and potentially entertain offers from buyers who would be willing to put down more money to purchase these high-value homes.

CBS News reported home values will increase 3.6 percent next year, which is actually lower than the current 4.8 percent in 2016, but financially beneficial nonetheless.

Millennials and Baby Boomers will loom large
The two largest generations in the nation, the Millennial and Baby Boomer cohorts, are poised to constitute an outsized share of market activity in 2017. This is due to the number of boomers reaching retirement age and subsequently shopping around for suitable homes to settle into during their golden years. These are typically one-story ranch-style homes that are smaller than ones boomers may have previously owned when they had households full of children.

Similarly, millennials have now entered the housing market en masse. This generation is beginning to take the plunge into homeownership and move away from renting, which had been their primary mode of living for many years. As twenty- and thirtysomethings start families and find well-paying careers, the demand for sizable and affordable housing will continue to rise.

Suburbs and the Midwest are calling
As these millennials finally achieve the American Dream of ownership, many will be looking to move away from densely populated urban centers. Additionally, more will pursue employment and housing opportunities in the Midwest, which has home values more in line with buyers' pocketbooks and ambitions.

24/7 Wall St mentioned Madison, Wisconsin, and Minneapolis, Minnesota, as Midwest hotspots of the future. This is in line with the fact that today's average buyer is still looking to reside within relatively close travel distance to major cities but still far enough away to avoid overpriced real estate and the transportation struggles that accompany urban areas.

Even smaller homes in high-density areas
While the tiny house movement is a separate but equally documented real estate trend, another factor is affecting the housing market of tomorrow: Cities are producing marginal levels of new homes, but they are disproportionately smaller ones. Part of this is due to limited space and local restrictions on square footage, but it's also because buyers are willing to pay much more for much less in many expensive cities. And if this model isn't broken, then why should developers and sellers change course?

In 2017, developers will focus more time and attention on building more units located near public transit, according to CBS News. But each new unit will be smaller in order to fit more tenants.

Interest rates will increase, but credit restrictions are loosening
As discussed in previous blog posts, mortgage rates are trending upward, and based on the Fed's dot plot models the central bank expects the economy to be strong enough in 2017 to warrant additional rate hikes.

The Fed has tentatively signaled three separate increases in its federal funds target range next year, which in addition to the most recent hike last week will mean borrowers will see mortgage rates rise each quarter for the foreseeable future. This trend is expected to continue into 2018 as well.

On the plus side, lenders are loosening their credit standards for many buyers. The Fiscal Times stated low down-payment and jumbo loans are more available now than in the past eight years. These options are in addition to conventional mortgages, providing buyers with a number of advantageous loan terms to choose from. And with rates rising, lenders will have to differentiate their offerings from peer institutions to entice more business, which could provide buyers with the leverage they need to obtain mortgages on affordable terms.

If you're in the market for a home loan in 2017, the best practice before you begin your search is to "know before you go."

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