1. Millennials and boomers will move markets and look to the MidWest for growth
In 2017, the U.S. real estate market will be in the middle of two massive demographic waves that will power demand for at least the next 10 years.
Millennials and baby boomers, the two largest American generations in history, are both approaching life stages that typically motivate people to buy a home: marriage, having children, retirement, and becoming empty nesters.
Smoke predicts that millennials will make up 33% of buyers in 2017, lower than his original estimate due to those increasing interest rates.
While the financial picture may look grim for our youngest home buyers, the Midwest, with its affordable cities, still looks good. We believe Midwestern cities will continue to beat the national average in terms of its proportion of millennial home buyers in 2017. Leading the pack are Madison, WI; Columbus, OH; Omaha, NE; Des Moines, IA; and Minneapolis.
“It’s easier for millennials to buy in more affordable markets like in the Midwest,” Smoke says. “We’re also seeing large numbers of millennials buying in Midwestern markets with or near big universities. So part of this is an effect of recent graduates with good jobs being able to settle down in these more affordable markets.”
2. New-home construction starts likely will tick up to about 1.5 million per year to 2024
The top markets for price appreciation likely will be in Seattle, Wash.; Portland, Ore.; Denver, Colo.; and Boston, predicts Eric Fox, vice president of statistical and economic modeling at VeroForecast. These markets’ robust economies have growing populations but a tight supply of homes for sale on the market that will likely lead to some of the largest price increases across the country.
Meanwhile, new-home construction starts likely will tick up to about 1.5 million per year to 2024, predicts Forisk Research.
3. Price appreciation will slow down
Nationally, home prices are forecast to slow to 3.9% growth year over year, from an estimated 4.9% in 2016.
“Prices are still likely to go up at an above-average pace as long as supply remains so tight,” Smoke says. “The inventory problem is not going away.”
Of the top 100 largest metros in the country, 26 markets are expected to see price acceleration of 1 percentage point or more, with Greensboro, NC; Akron, OH; and Baltimore experiencing the largest gains. Likewise, 46 markets are expected to see a slowdown in price growth of 1 percentage point or more, with Lakeland, FL; Durham, NC; and Jackson, MS, undergoing the biggest downshift.
4. Fewer homes, fast-moving markets
The inventory of homes available for sale is currently down an average of 11% year over year in the top 100 U.S. metropolitan markets—and the conditions limiting home supply are not expected to change in 2017. The median age of inventory, or the time it takes a home to sell, is currently 68 days in the top 100 metros, which is 14%, or 11 days, faster than the national average.
5. The West will lead the way
We’re expecting metropolitan markets in the West will see a price increase of 5.8% and sales increase of 4.7%, much higher than the U.S. overall. These markets also dominate the ranking of the realtor.com 2017 top housing markets (more on that tomorrow), making up five of the top 10 markets on the list: Los Angeles, Sacramento, and Riverside in California; Tucson, AZ; and
6. Rising Rent Could Be Your Deciding Factor in 2017
Considering these housing market forecasts, many professionals say it’s wise for prospective home buyers to think about purchasing relatively soon.
Mortgage interest rates remain low and housing price are rising.
“I think it’s still a great idea for first-time buyers to purchase now, because most are paying high rents and need the tax write-offs that come with owning a home,” says Guth.
Richardson agrees that rental affordability is one of the biggest factors driving first-timers into the market.
“With rates at historic lows, buyers may be able to find a home with a monthly mortgage payment that is less than or equal to rent,” she says.
Richardson adds, “The conditions that challenged first-time and millennial homebuyers this spring are starting to ease. There are fewer bidding wars and less of a need to escalate significantly above the list price to get an offer accepted. And the pace of the market is also slowing, which helps buyers since they can now afford to be more patient.”