What experts say is on the real estate radar in 2017
Real estate has traditionally been a solid investment. In fact, financial planners typically correlate real estate holdings with a strong portfolio and overall financial security. This mantra still holds true in today's economic environment, and heading into 2017, many experts predict more of the same.
Technology will continue to play a larger role in real estate transactions next year, which younger buyers will surely appreciate. Connections to tech-conscious buyers could come in the form of mobile apps providing real-time listings, online digital platforms allowing for reviews and group commentary, and automated financial advice provided by agents or other industry professionals.
But Big Tech will hardly be the main differentiator in 2017. That honor belongs to market fragmentation, says Fortune contributor Kerry Close.
How fragmentation is affecting the industry
What do you have when prices, supply, demand, square footage and a host of other real estate metrics wildly differ region to region? Market fragmentation.
Close noted buyers and sellers who best understand this dynamic are more strongly positioned to do well in 2017. That's because an investment once thought sound last year in San Francisco may now seem ill thought-out; the better bet could be in the South or Midwest.
The average price of a home is expected to rise another 3.5 percent next year, which is welcome news to sellers but may have buyers feeling a bit standoffish. The key is knowing where one's money is more valuable and just how far each dollar can be stretched.
Close also stated that inventory on affordable homes is drying up, and that new construction is mostly geared toward homes on the expensive end of the spectrum. This isn't ideal for first-time homebuyers or those with inflexible budgets, but it's the current reality that millions of prospective buyers face nonetheless.
With housing markets across the country facing their own unique challenges, buyers may be best-suited relocating to areas that fit their future needs. For instance, a young family of four will be hard-pressed to find affordable real estate in many coastal regions, but could see better prospects in places like Houston or Dallas, booming cities with high job growth yet still-affordable housing.
Fragmentation of this sort makes it difficult to make national predictions, which is why many analysts prefer local economic models to project where the real estate industry may be heading. The one constant throughout every region is the necessity of finding an affordable mortgage rate, which will be discussed later on in this post.
Where prices could be heading
Forbes contributor Omri Barzilay interviewed real estate startup RoofStock's CEO Gary Beasley, who indicated 2017 will a year of rising home prices. Beasley partners with a group of real estate veterans and works with various predictive models to ascertain future market performance. He states the level of price growth will vary in 2017, another sign of market fragmentation.
"As a marketplace, we are constantly looking for better and better data and research that we can make available to our investors and can inform our forecasts," said Beasley. "We review numerous home price appreciation forecasts on a regular basis, and all of them today anticipate some level of price growth … where they vary is the rate of growth. Given the increasing job growth, household formation and lack of new single-family supply being added, we do believe prices should trend up and to the right over time. Also, real estate is an excellent inflation hedge, so if the new administration is as stimulative as it appears it may be, it could lead to higher inflation than we have seen in some time, which would tend to put upward pressure on hard asset values."
Texas in particular is a market that will benefit from strong growth in 2017. According to CultureMap Austin, Texas already broke real estate records in 2016, but is expected to surpass those numbers once again next year.
Prices in the state's metro areas will continue to rise in 2017 on the heels of strong Q3 and Q4 growth. One trend to note is that demand for housing still exceeds inventory in most areas of Texas, which could inflate prices even higher over time. This has the potential of placing pressure on prospective buyers who may be on the fence of homeownership or who lack the confidence to save for a large down payment.
Factoring in your considerations
While different segments of the country experience slight economic downturns, others are seeing a rush of new jobs and higher wages. What this means for the average consumer is that there are plenty of options to choose from.
Younger buyers may seek smaller, affordable housing units such as apartments or condos. Older buyers may be in the market for ranch-style homes to retire in - it all depends on individual preferences and financial capabilities. In general, the South continues to be a hotbed for economic growth, as Americans leave traditional big cities like New York and San Francisco and opt to live in areas like Houston and Austin.
What affects buyers of all age and price ranges are interest rates, which will likely be rising in the months ahead.
Upon the election of Republican Donald Trump, economists predict the case for a hike in the federal funds rate has never been stronger. With the election now over, the central bank has a clearer picture of the nation's future and will likely judge the economy strong enough to absorb tighter lending requirements and loan availability.
As a current or potential homeowner, a change in interest rates should be front of mind before making a decision. Over the life of a home loan, a small percentage point difference in your mortgage rate could equate to tens of thousands of dollars in extra expenses or potential savings. That's why it's more pertinent than ever to vet prospective mortgage options and speak with a professional before moving forward with purchasing a home in 2017.
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