U.S. Real Estate Predictions for 2017

It is with great sadness and generosity that my annual rollout of US. Real Estate predictions can proceed forward. This year will have more of a political bent given that 2016 was all about the politicos and the mental consternation it brought to the American psyche. Most often, real estate predictions are about hard numbers, sales expectations, housing starts, etc., etc., etc. Pretty dry stuff if you’re a normal human being, but if you’re a policy wonk or a real estate broker, it’s a nirvana jubilee. This year I shall call my prescient forecast “Sidney’s Pix Six”.

Millennials (Send in the Millennials)
According to Zillow magazine, “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.” Unless you’re a devout racist, this is probably a good omen. Similar to the saying: Happy wife… happy life. An active housing economy saying is as follows: Happy labor market… happy America.

In addition, the 2017 National Housing Forecast is in lock step with Zillow, with its position that millennials and baby boomers are fully expected to constitute the majority of housing market participants in the coming year. The National Housing Forecast also noted “… that millennials will represent the largest share of buyers at 33 percent, a market ratio that has actually been lowered due, largely in part, to the impending interest rate hike”. In terms of the Mid-West, researchers believe they will lead the pack in aggregate purchases. “This year, average millennial market share in these markets is 42 percent, far higher than the U.S. average of 38 percent.”, said the report.

New home growth connected to Obama job creation
Will new housing starts have been better under Obama or the President-elect. There is varying opinion on that speculation, but here are what some for the pros say. “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”, says Dr. Svenja Gudell, the chief economist at Zillow. Furthermore, “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.”

Home Appreciation (The froth on the Top)
Even non-policy wonks like to sip the froth on the top. In real estate terminology, real estate home appreciation is the Eighth Wonder of the world. And according to Zillow, once again they’ve conveyed that sediment in numeric value. However, just like stats inherently lie, there’s good news and bad news. The good news is that there’s appreciation (remember, several years ago there’s wasn’t), the bad news is that it will be lower than 2016.

“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 had risen 4.8 percent so far in 2016.

The good news on this disappointing forecast, is that the slow pace in price growth will be great for home buyers, since a slower market means slightly lower prices. However, some real estate experts refer to this as Phase-two of the post-Recession market. Phase-one having been the boomer-rang of price acceleration after the market had hit dirt bottom. The other 800-pound gorilla expert in the room is Reator.com, which anticipates a 3.9 appreciation rate, compared to Zillow’s 3.6.

Foreign buyers will play a smaller role (No Visa, No Dinero)
Lately, there’s been quite a bit of heightened drama with Number 45, even before he’s signed the lease at 1600 Pennsylvania Avenue. Arguing with world leaders seems to be the new norm, given the tit-for-tat with China, England and others. This raises the question of foreign buyers. The word on the street is that foreign buyers will be a bit more circumspect, since they will now have to consider their own visa and permanent Alien status given the President-elects stance on immigration policies and visa reform. Translated: Hesitant foreign buyers will mean less buying on the home luxury market, a longtime favorite cash bucket for foreign nationals to invest their money in the states.

While Orange is the New Black, Small is the New Big (or vice versa)
Based on facts, not speculation, the median square footage for new homes in 2016 fell downward. That’s a canary in the coal mine event. Meaning it’s not good. The Texas A&M’s Real Estate Center notes there are serval reasons for this present and future shrinkage, which can be attributable to several factors: higher demand for homes close to city centers, the Tiny Home movement (thanks HGTV), and the Come to Jesus Moment of home builders who now realize that poor home buyers can only afford so much square footage. The solution, build smaller homes. Problem solved.

Loan Democracy is Loan Democratization
I have advocated residential mortgage loans that are more user friendly. And that’s just not me, it’s think tank policy wonks as well, since some are pro-business advocates. Translated: Increase the FICO score requirement, but allow buyers and market players (aka small investors), into the game with less money down. According to the Mortgage Credit Availability Index, it’s easier to get a mortgage now than at any time in the past eight years.

Banks may also be more willing to work with borrowers over the next few years as they look to make up for a decline in refinancing business when interest rates go up. “The pendulum has been swinging toward a loosening of the credit box a bit,” says Daren Blomquist, a senior vice president with Attom Data Solutions. “I don’t think we’ll see a reversal of that with the new administration. We’ll likely see an acceleration.
—The Fiscal Times, November 22, 2016

In a nutshell, these are the primary issues of why 2017 will be different in terms of real estate. The reasons are fairly basic and logical. The newly elected president, and his administration have three major policies that are game changers. Think the following: 1) Infrastructure spending, 2) Tax cuts, and 3) Changes to immigration policy. The cause and effect will directly effect new construction starts and mortgage rates.

So there you have it. One hates to be the bearer of bad (and good) news. May we have a propitious year and hope the real estate Gods are open minded to their favorite Son.