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The US housing market is expected to slow down “across the majority of economic indicators” in the coming year. While moderate growth compared to the last two years is predicted, a post-election increase in the national interest rate could price out some first-time homebuyers that are more reliant on financing, according to a new forecast released today by Realtor.com.
National home prices are forecast to increase nearly 4 percent year-over-year in 2017, which is below the estimated 4.9 percent growth for 2016. Existing home sales will likely increase almost 2 percent to 5.46 million homes. Because of “higher expectations for inflationary pressure,” interest rates are anticipated to climb to 4.5 percent next year.
Western US metros are forecasted to record a price increase of 5.8 percent and sales increase of 4.7 percent, which is well above the national average.
Meanwhile, Realtor.com is forecasting that new home sales will grow 10 percent, and new home starts will increase 3 percent in the coming new year.
The national inventory is down by 11 percent, and is not expected to change in 2017.
The homeownership rate is expected to increase to 63.5 percent, following 2016’s historic low of 62.9 percent. This forecast is based on “GDP growth of 2.1 percent, a 2.5 percent increase in the consumer price index and unemployment declining to 4.7 percent by the end of the year,” says Realtor.com
However, prior to this month’s election, a substantial increase in first-time homebuyers was expected in 2017. With the mortgage rate climbing in the weeks following the election, Realtor.com says first-time homebuyers will likely face “new hurdles as they navigate the qualification and buying process.”
The rising mortgage rate is in anticipation of stronger economic and wage growth in 2017, which “favors buyers.” However, higher interest rates make mortgage qualification and finding affordable housing more difficult.
Although Realtor.com lowered Millennials’ share of the homebuyer pool to 33 percent due to rising interest rates, it anticipates Millennials and Baby Boomers will make up over 60 percent of homebuyers for the next 10 years.
Millennials will still favor the midwest in 2017. Cities like Columbus, OH and Des Moines, IA — where Millennials make up 42 percent of the market, compared to 38 percent nationally — will continue to be “hotbeds” for the demographic.
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