Will Donald Trump affect the housing market in 2017? That’s the question on the mind of every Realtor, mortgage lender, home inspector, contractor and housing industry observer.
The answer probably won’t be known until well after the inauguration – mostly because Trump hasn’t been clear about where his priorities or loyalties lie when it comes to real estate, lending and new construction.
What we do know is that 2016 is ending with the lowest unemployment rate (4.6 percent for the official unemployment rate, according to figures released Friday morning) since 2007, mortgage interest rates are rising, as are rental rates. What we don’t know is if the rise in incomes will be enough to offset rising housing prices combined with rising interest rates – that’s a direct hit to affordability.
In the meantime, my inbox is filling up with predictions about how a Trump presidency will affect the housing market.
Zillow’s experts predict that Trump policies could affect new housing costs, as new buyers look to enter the market next year. They also predict that the homeownership rate will bounce back in 2017, even as renting becomes more affordable. We will, apparently, see an increase in new household formation as well as more Americans buying in affordable suburbs then driving to bigger urban areas for work.
Zillow’s predictions for 2017 include:
- Cities will focus on denser development of smaller homes close to public transit and urban centers.
- More millennials will become homeowners, driving up the homeownership rate. Millennials are also more racially diverse, so more homeowners will be people of color, reflecting the changing demographics of the United States.
- Rental affordability will improve as incomes rise and growth in rents slows.
- Buyers of new homes will have to spend more as builders cover the cost of rising construction wages, driven even higher in 2017 by continued labor shortages, which could be worsened by tougher immigration policies under President-elect Trump.
- The percentage of people who drive to work will rise for the first time in a decade as homeowners move further into the suburbs seeking affordable housing – putting them further from adequate public transit options.
- Home values will grow 3.6 percent in 2017, according to more than 100 economic and housing experts surveyed in the latest Zillow Home Price Expectations Survey. National home values have risen 4.8 percent so far in 2016.
“There are pros and cons to both existing homes and new construction, and the choice for home buyers can often be difficult. For those considering new construction in 2017, it’s worth considering the added cost that may come amidst ongoing construction labor shortages that could get worse if President-elect Trump follows through on his hard-line stances on immigration and immigrant labor. A shortage of construction workers as a result may force builders to pay higher wages, costs which are likely to get passed on to buyers in the form of higher new home prices,” said Zillow’s Chief Economist Svenja Gudell.
Even as new construction gets more expensive, Gudell believes that “income growth and slowing rent appreciation will combine to make renting more affordable than it has been for the past two years.”
Realtor.com, a website that was launched by the National Association of Realtors but was bought by Rupert Murdoch’s Newscorp in 2015, predicts that mortgage rates will hit 4.5 percent in 2017 amid post-election economic changes, and that the housing market will see slowing, but moderate growth. The site’s top five housing trends for 2017 include:
- Millennials and Boomers will dominate the market. Realtor.com Chief Economist Jonathan Smoke believes that these two massive groups of Americans will dominate the housing market for the next ten years, as Boomers begin to downsize and then rent, and Millennials begin to buy the homes in which they’ll raise their families.
- Midwestern cities will continue to be hotbeds for Millennials, particularly in markets like Madison, Wisconsin, Columbus, Ohio, Omaha, Nebraska, Des Moines, Iowa, and Minneapolis.
- Slowing home price appreciation. As interest rates rise, affordability will fall, and home price appreciation will slow down.
- Fewer homes on the market and fast moving markets. There will be fewer homes on the market, but demand will hold steady in most places, meaning that home buyers had better be prepared to act fast or miss the opportunity to buy the homes they want.
- Western cities will continue to lead the nation in prices and sales. Western metros in the U.S. are forecast to see a price increase of 5.8 percent and sales increase of 4.7 percent, much higher than the U.S. overall.
“We don’t expect the outcome of the election to have a direct impact on the health of the housing market or economy as we close out 2016. However, the 40 basis points increase in rates in the days following the election has caused us to increase our interest rate prediction for next year,” said Smoke. “With more than 95 percent of first-time home buyers dependent on financing their home purchase, and a majority of first-time buyers reporting one or more financial challenges, the uptick we’ve already seen may price some first-timers out of the market.”
According to Freddie Mac Deputy Chief Economist Len Kiefer, 2016 saw strong housing demand and a housing market poised to close out the best year for home sales in a decade.
“National home prices have surpassed their pre-recession nominal peak with about half of states still below their pre-recession peak. Factoring in low mortgage rates and modest income gains, house prices still have some room to run,” Kiefer said, adding that he remains concerned about higher interest rates affecting affordability in 2017.
“The recent jump in mortgage rates will drive down homebuyer affordability and likely dampen demand for home sales next year. Though we’ve come far, as indicated in the national statistics, housing still has significant room for improvement in many markets across the country as indicated by the fact that 24 out of the top 100 metros are still more than 20 percent below their historic benchmark as measured by the Multi-Indicator Market Index (MiMi).”
Ilyce Glink is an award-winning syndicated columnist, a bestselling book author, and the publisher of ThinkGlink.com. She is also the Founder/CEO of Best Money Moves.