Last week, I participated in the 2017 Housing Market Forecast and Homebuyer Trends webinar hosted by the American Land Title Association (ALTA). Jessica Lautz, a consumer research expert from the National Association of Realtors, and I discussed how the real estate market is changing and what we can expect. We tried to answer the question posed in the title of the webinar, “Has the Game Changed?”
It’s a timely topic here in Washington D.C. As our collective thoughts turn to the inauguration of the next President and all the pomp and circumstance that surrounds it, I’ve been focused on what the real estate market will look like in the year ahead.
“I look forward to the next 12 months in the housing market because I believe the fundamentals are sound and the desire for homeownership remains strong.”
In my humble opinion, three main themes will dictate the story for the real estate market in 2017. First, and most important, is the continued demographic transition of economic power from Baby Boomers to Millennials. Millennials are an increasingly important economic force and a growing source of homeownership demand that will gradually become more and more influential to our housing market.
Secondly, the rise of mortgage rates. The odds are higher than ever that 2017 is the year we say goodbye to 30-year, fixed-rate mortgages with rates below 4 percent. This will usher in a new market era, where higher mortgage rates mean less refinance activity, and more reliance on the first-time homebuyer, magnifying the influence of Millennials I mentioned above.
Finally, the housing market will still thrive in these conditions. Higher rates reduce consumer house-buying power and reduce affordability. However, the reason rates rise is because of faster economic growth and inflation, which usually increases wages, and can offset the impact of higher rates. My research also shows that rate increases reduce the pace of house price growth more than they cut demand. When you examine all these factors together, the result is homes will remain more affordable than they have been in recent memory.
For more on these themes, and for additional details on Millennials from Jessica Lautz, I encourage you to watch the ALTA webinar here.
I look forward to the next 12 months in the housing market because I believe the fundamentals are sound and the desire for homeownership remains strong. Will there be challenges? Of course, but when it comes to housing, there are some built-in market advantages – you can’t outsource it and everyone needs it.