Changes are here and more are on the way in residential real estate.
And that’s after a year of surprises in 2016, when home prices nationally rose 6.2 percent, one of the highest readings this decade, and are nearly back to pre-recession highs. And mortgage rates continually slid through October to historic lows near 3.5 percent.
Meanwhile, when compared to 2015, the U.S. Census Bureau reported new home sales were up more than 12 percent last year, and the National Association of Realtors reported existing home sales were up almost 6 percent.
The surprising result of the presidential election won’t alter the basics shaping this year’s real estate market. But its impact is being felt with increasing interest rates, a movement that’s likely to affect the youngest generation of homebuyers.
Uncertainty about the Donald Trump administration, mixed with typical seasonal slowdowns for much of the country, could exacerbate a lack of inventory on the market as sellers wait for a high-demand scenario.
If Trump can create clarity and some stability in the real estate market and the economy as a whole in his first six months, buyers and sellers sitting on the fence will have enough confidence to jump in and continue to drive values higher.
RECOVERY COULD EASE
According to the NAR, the 2017 national market is predicted to ease, compared to the past two years.
The pace of growth will remain strong, and pricing still will represent an above-average level of appreciation, but the market will be less extreme.
Higher pricing and mortgage rates will make it more challenging to be able to afford homes compared to what it has been over the course of the housing recovery.
SALES, PRICES UP IN BERKS
In Berks County, most of 2016 offered the same monthly housing market highlights: The number of homes for sale was dramatically down in annual comparisons, along with days on market and months of supply. Meanwhile, sales and prices were up in most markets, with low unemployment rates and improved wages.
During the last quarter of 2016, new listings decreased 9.7 percent to 1,207. Pending sales were up 9.3 percent to 1,009. Inventory levels shrank 30.7 percent to 1,590 units.
Prices continued to gain traction. The median sales price increased 1.3 percent to $152,000.
The average for days on market was down 7.4 percent to 75 days. Sellers were encouraged as the months’ supply of inventory was down 35.6 percent to 3.8 months.
MILLENNIALS, BOOMERS MOVE MARKETS
Looking to this year, the U.S. is in the middle of two massive demographic waves that will power real estate demand for at least the next decade.
Millennials and baby boomers, the two largest American generations in history, are approaching life stages that typically motivate people to buy a home: marriage, having children, retirement and becoming empty nesters.
NAR chief economist Jonathan Smoke predicts millennials will make up 33 percent of buyers in 2017, lower than his original estimate because of increasing interest rates.
Even though student debt is still a top factor influencing whether or not millennials will buy a home, many of those who do buy have saved enough to purchase something more than a condominium unit or starter home.
NEXT UP: GENERATION Z
The first members of Generation Z will reach their 18th birthdays in 2017. According to NAR research, as adults, they will experience low interest rates, better job prospects and higher wages – and 97 percent of Gen Z-ers want to own a home.
Nationally, home prices are forecast to slow to 3.9 percent growth annually, from an estimated 4.9 percent in 2016.
“Prices are still likely to go up at an above-average pace as long as supply remains so tight,” Smoke said. “The inventory problem is not going away.”
FEWER HOMES, RISING RATES
The inventory of homes available for sale is down an average of 11 percent annually in the top 100 U.S. metropolitan markets — and the conditions limiting supply are not expected to change in 2017.
The median age of inventory, or the time it takes a home to sell, is 68 days in the top 100 metros, which is 14 percent, or 11 days, faster than the national average.
While it is unlikely we will see a continued increase of major proportions, buyers should be prepared to see mortgage rates in the mid-4 percent range during 2017.
The NAR projects interest rates at 4.4 percent in the fourth quarter of 2017. Rising rates may encourage buyers to get into the market earlier in the year.
JUMP IN HOUSING STARTS
The National Association of Home Builders estimates it will have 1.242 million housing starts in 2017, continuing its upward trend the past five years. While home prices are not expected to make any major jumps, they, too, will continue an upward trend, continuing to cater to repeat buyers.
The overwhelming feeling about prospects in residential real estate for the immediate future is optimism. Real estate professionals locally and nationally are expressing that they are as busy as ever.
There are certainly challenges in this market, such as continued low inventory and higher competition for those fewer properties, but opportunities abound for diligent consumers.
Nadia Muret is executive director of The Reading-Berks Association of Realtors (www.realestateinberks.com), a professional trade association for licensed real estate practitioners. Membership in the organization is voluntary and consists of residential and commercial agents and brokers, as well as industry affiliates. She can be reached at 610-375-8458 or [email protected]