This Week in Real Estate: November 14, 2016

The 2017 housing market forecast and affordability were topics that received the most attention This Week in Real Estate coming off the heels of the National Association of Realtors Conference and Expo. Below are a few highlights from the second week of November that influence our business:

* What’s In Store For Housing In 2017? For the majority of this year, the housing market could not get past low inventory levels, which were continuously cited as the main road block to a fully healthy housing market. Next year should be better, according to the newly released forecast from the National Association of Realtors, but its going to take time. “It’s evident that demand and sales slightly weakened over the summer as stubbornly low supply buyers’ choices, accelerated price growth and hindered some consumers’ belief that now is a good time to buy a home,” said Lawrence Yun, chief economist of the National Association of Realtors. Looking to next year, Yun stated that he thinks the tight supply and affordability issues affecting buyers in many markets will very slowly but surely start to abate. Yup predicts that housing starts will jump 5.3% next year to 1.22 million. However, this is still under the 1.5 million new homes needed to make up for the shortfall in recent years and keep up with the growing demand. The report added that new single-family home sales are likely to total 570,000 this year and rise to around 620,000 in 2017. According to Yun’s forecasts for next year, existing-home sales are projected to grow roughly 2% to around 5.46 million, and then experience a more prominent jump of 4% in 2018 (5.68 million). The national median existing-home price is expected to rise around 4% both this year and in 2017, and by the end of 2017, Yun said he expects rates to be around 4.5%. As for the rest of 2016, Yun added that he expects existing-home sales to finish at a pace of about 5.36 million – the best year since 2006 (6.47 million).
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* Housing Affordability Edges Lower In Third Quarter. Ongoing home price appreciation offset a small decline in mortgage interest rates to move housing affordability slightly lower in the third quarter of 2016, according to the National Association of Home Builders/Wells Fargo Housing Opportunity Index (HOI). In all, 61.4 percent of new and existing homes sold between the beginning of July and end of September were affordable to families earning the U.S. median income of $65,700. The national median home price increased from $240,000 in the second quarter to $247,000 in the third quarter. Meanwhile, average mortgage rates edged lower from 3.88 percent to 3.76 percent in the same period.
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* Balancing Act of Low Rates, Rising Home Prices is Keeping Affordability Stable For Now.
“The latest Black Knight Home Price Index (HPI) report showed that, as of the end of August, U.S. home prices were within just 0.7 percent of hitting a new peak,” said Black Knight Executive Vice President Ben Graboske. “This is important for a number of reasons, not least of which is the impact it could have on home affordability. Right now, however, affordability remains steady as low interest rates continue to offset rising home prices. In fact, even though the value of the average home in the U.S. increased by about $13,500 over the last year, thanks to declining interest rates it actually costs almost exactly the same in principal and interest each month to purchase as it did this time last year.” The most recent HPI data is also important when it comes to the growing discussion surrounding conforming loan limits. The Housing and Economic Recovery Act of 2008 restricted any additional increases in the conforming loan limit until national home values returned to pre-crisis levels. Now that we’ve reached that point by multiple measures, the GSEs can consider raising the national conforming limit above the static $417,000 where it has stayed for the last 10 years. Black Knight also found that while Oregon, Washington and Colorado continue to see the highest levels of HPA, of the three, Colorado’s rate of appreciation is down one percent from last year. Both Washington and Oregon continue to accelerate, with annual rates of HPA over 1.5% higher than one year ago.
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Have a productive week.

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