2016 Was a Great Year for Real Estate and 2017 is Expected to be Another Banner Year
Total existing home sales in 2016 were the most robust since the boom days before the 2008 Financial Crises. According to the National Association of Realtors (NAR), 5.45 million transactions were completed last year, as compared to 5.25 million in 2015. The 2016 statistic was the highest since 2006.
According to Lawrence Yun, the chief economist at NAR, “Solid job creation throughout 2016 and exceptionally low mortgage rates translated into a good year for the housing market.”
The December housing report from the NAR underscored the strength of the housing rally. The median existing home price was $232,000 in December. This represents a four percent increase form 2015, when the median price was $223,000.
In December of 2016, properties for sale stayed on the market for an average of 52 days. In the prior year, the average was 58 days.
Cash sales accounted for 15 percent of all transactions, the exact same figure as 2015. Distressed sales (foreclosures and short sales) were down by eight percent compared to a year ago. This is a particularly good sign going forward if the trend continues.
The total housing inventory in December of 2016 fell 10.8 percent to 1.65 million. This figure is the lowest since the NAR began compiling these statistics in 1999. The inventory is 6.3 percent below a year ago. At the current sales pace, this would represent just a 3.6-month supply – a historic low. As home prices are largely governed by supply and demand, we should expect continued rising prices in 2017.
According to Yun: “Given current population and growth trends, housing starts should be in the range of 1.5 million to 1.6 million completions and not stuck at recessionary levels.” Yun represents the consensus view among economists in the real estate industry when he warns, “More needs to be done to address the regulatory and cost burdens preventing builders from ramping up production.”
Housing prices rose virtually every month in 2016, with the largest gains coming in the latter half of the year. In 2016 home prices appreciated by 5.61% nationally compared to the prior year. Most experts predict continued growth.
“We believe price increases will hold steady…because homebuyer demand is stronger now than it was at the same time last year, and because we see a small uptick in homes for sale,” notes Nela Richardson, chief economist at real estate brokerage Redfin. The firm predicts similar price increases in 2017.
“With the current high consumer confidence numbers and low unemployment rate, affordability trends do not suggest…a reversal in home price trends,” according to David Blitzer, chairman of the Index Committee at S&P Dow Jones Indices.
Mortgage rates which have recently inched above 4% are still very low by historical standards, and most experts believe they will remain low throughout 2017.
Credit availability should improve as well, going forward. The Trump administration has made it a priority to roll back much of the Dodd-Frank Act enacted in the aftermath of the 2008 Financial Crises. The legislation added layers of regulation on the banking sector in an effort to avoid another financial meltdown. But the banks assert that a partial rollback will propel them to increase lending.
In sum, the housing market outlook for 2017 is an optimistic one, with home prices rising, a larger number of buyers entering the market, easier credit and continuing low mortgage rates.