The new year is expected to deliver the “fastest growing housing market on record,” according to Redfin.
Home price growth and demand will contribute to the expanding housing market, despite rising affordability concerns. Median home sale prices are expected to increase 5.3 percent year over year compared to the estimated 5.5 percent in 2016. Existing-home sales are predicted to increase 2.8 percent in 2017, compared to the estimated 3.4 percent increase this year. Due to strong homebuyer demand and steady price increases, the housing market will see an increase in home sales, Redfin reported.
Affordable homes on the median income in the nation’s largest cities will continue to decrease in 2017, making affordability a deciding factor in whether buyers should sell their homes to refinance for a higher mortgage or keep their current mortgage rate. The report predicts that rising mortgage rates will act as an incentive for people to stay in their homes and hold onto a low mortgage payment, or rent their homes out instead of selling to make a profit. This will result in a “permanent shortage of starter homes for sale, even as the inventory for expensive homes improves next year,” according to Redfin.
A Redfin spokesperson told DS News that homeowners will be hesitant in purchasing a new home due to rising mortgage rates. "Many homeowners who may have considered purchasing a move-up home will hold back because they’re locked into their current mortgage rate below 4 percent. We think that this will lead to a shortage of starter homes for sale, which will make the search for first-time homebuyers on the lower end of the price spectrum increasingly competitive. For buyers on the high end of the market, competition will be cooler as inventory in that sector continues to increase. Unfortunately for first-time buyers without the capital yet to reach that end of the market, they’ll have a small number of homes to choose from within their price range."
A lack of housing inventory hindered first-time buyers from purchasing homes in 2016. The report indicates that housing inventory will increase approximately 1.7 percent year over year in 2017. Home sales would have been stronger if there was more inventory available to meet the demand of homebuying millennials. Redfin predicts that a shortage of supply will keep sales growth weak in 2017.
Nela Richardson, Chief Economist at Redfin, expects the incoming administration to stimulate growth and positive change in the economy. "Next year, the new administration will lead a shifting U.S. economy,” she said. “Baby boomers will become less economically relevant as millennials continue to come of home-buying age. Superstar cities will create much of the job growth, pushing wages in those cities up. Yet the percentage of homes in America’s largest cities that are affordable on the median income has declined the past two years and will continue to fall in 2017. Sales would be even stronger if there were more starter homes on the market to meet demand from millennial homebuyers. We expect to see more homes built in second-tier cities and more millennial homebuyers moving from the coasts to smaller and inland markets where they can find affordable starter homes."
To view the full report, click here.