During the last few years, the U.S. housing market has witnessed significant rebounds. In fact, the average price of a home in September of this year was 0.1% higher than the 2006 peak before the housing bubble burst ten years ago. 2016 saw a 5.5% rise over the previous year, indicating that home values and prices are on a continued upward trajectory. While this growth is certainly positive for homeowners and the overall economy, the rate will likely slow during 2017 for a number of reasons. Read on to find out more about what to expect for the U.S. housing market in the new year.
Rising Interest Rates
The Federal Reserve already announced its first interest rate increase in years, and also gave warning to expect three more increases throughout 2017. Rates have been at historic and near-historic lows since the Great Recession hit in an attempt to spur lending and economic growth. Since the economy has recovered to a point the Fed is satisfied with, the rate hike shows they believe that the markets can tolerate higher interest rates.
This move will directly impact the housing market in a number of ways. First, it will likely slow home value increases. Since homebuyers must be approved for a mortgage based on the monthly loan payment amount, the amount they spend on the actual principal will have to be cut to compensate for the extra money they’re spending on interest. This could also lead people looking at houses under budget to perhaps spend a little bit more, which might slow other parts of the economy since that money may be spent on housing instead of other things. Of course, the rate increases are fractional and spread out, so the effects won’t be terribly dramatic, but still enough to slow growth a bit.
Urgency to Buy
However, 2017 won’t be all doom and gloom for homeowners hoping to sell their homes at a premium. Since the rate hikes have been announced and potential buyers know they are on the rise, it could spur an urgency for renters and other homebuyers to make a decision sooner rather than later. If they haven’t already taken advantage of low rates, they know now is the time to lock in before more increases take place.
This is particularly true of Millennials who previously preferred renting to buying. But with low interest rates on mortgages and rent prices on the rise throughout the nation, many younger people are deciding to jump on the homeownership bandwagon. In fact, a survey by Realtor.com revealed that more than half of homes sales in 2017 would be from first-time homebuyers — and the majority of those will be Millennials. It’s an interesting change in the narrative as an entire generation begins a new mind shift in the way they view housing and real estate.
Greater Slowdowns in Larger Markets
While the broader U.S. market will see moderate slowed growth throughout 2017, larger markets will likely have a much more significant slowing of home prices. Cities like New York, San Francisco, and Miami — who have generally seen double-digit growth in recent years — are poised to see continued major slowdowns. These are the cities that saw the quickest recovery from the housing slump since they are major economic centers.
But the effects of a growing economy have finally trickled down to smaller markets, and those are the areas that will see the greatest sustained growth. It’s taken them a while to catch up, but where larger markets are witnessing less of a boom, mid-sized cities with affordable homes for those earning around the median income will become the stars of 2017.
Navigating the New Market
Homeowners and homebuyers alike can benefit from the real estate market in 2017 if they keep a smart strategy. If you’re a homeowner who has been thinking about making a move, now might be the right time. You could potentially sell your house at a premium while still taking advantage of low interest rates before they rise too much.
It’s also an ideal time for refinancing before interest rates get too high. Even if you’re still in a home that you purchased during the housing peak and the value hasn’t reached your loan amount, you can take advantage of the federal government’s Home Affordable Refinance Program (HARP). It was initially set to expire at the end of 2016 but has been extended to last until September 30, 2017. In fact, it’s estimated that at least 300,000 homeowners are eligible for this program. No matter what you choose, make sure you follow the best practices for refinancing to make sure it’s the best decision for you.
If you’re a potential homebuyer, don’t push your housing budget because of higher interest rates. You could become maxed out, especially in the event of a financial emergency like an illness or job loss. In that situation, you could quickly become at risk of going into foreclosure. While there are many ways to get foreclosure help, it’s always best to avoid it at all costs.
Photo is pixabay Public Domain
Guest Author Bio
Simon Campbell has spent over 15 years in all the various facets of real estate including sales, purchases, investment and research. Simon has changed directions and is now sharing his knowledge and experience with others to avoid foreclosure. For more details, check his website StopForeclosuresHelp.