“Cooling” seems to be the key word for 2017.
Many analysts and economists expect the residential real estate market to cool down over the next 12 months, in terms of both competition and home-price appreciation.
Housing markets in a handful of metro areas will continue to sizzle in 2017, while the rest of the country could experience a cooling trend. Mortgage rates will likely hover in the 3.5% range for the short term, but could rise above 4% through the first half of 2017. Loan limits could also rise in some parts of the country next year, in response to rising home values.
Let’s take a closer look at these and other housing market forecasts and predictions for 2017.
1. Home prices nationwide to rise 3% – 5% over next 12 months.
In October, the economic research team at Zillow issued this 12-month forecast for the U.S. housing market: “United States home values have gone up 5.1% over the past year and Zillow predicts they will rise 2.7% within the next year [through October 2017].”
The widely cited CoreLogic HPI Forecast suggests that house prices in the U.S. will rise by 5.3%, year over year, from August 2016 to August 2017.
The Zillow prediction extends through October, while the HPI Forecast looks out to September of next year. Additionally, the two companies use different data models to make their projections. Hence, the different estimates.
Of course, these are national forecasts for the U.S. housing market as a whole. At the local level, we expect to see a broad spectrum of price increases (and, in some cases, price declines) over the next 12 to 14 months. Which brings us to housing market prediction #2.
2. California’s red-hot housing markets will cool significantly.
Many California cities experienced tremendous price growth over the last few years. But that’s beginning to change. Housing markets across the Golden State are slowing down, as demand softens. Affordability is an issue in many of these markets. Buying a home has become cost-prohibitive in many parts of the state, for the majority of residents. Some residents are leaving the state because of it.
Housing markets across California are undergoing a shift. It’s not a buyer’s market yet, but it’s not the strong seller’s market of years past either. Home prices are leveling off in many major metros.
For example, Zillow recently issued a housing market forecast for San Francisco, which was one of the hottest real estate markets 18 months ago. By their estimation, home prices in the city will actually drop a bit over the next 12 months.
“San Francisco home values have gone up 0.6% over the past year and Zillow predicts they will fall -0.4% within the next year,” the company said in October 2016. This is a market that has peaked, plain and simple.
Similar trends are playing out across the state, though to varying degrees. In San Diego, for example, home prices are expected to rise by just 1.7% over the next 12 months, compared to a gain of 4% over the last year or so. In Los Angeles, it’s the same thing. Prices rose 6.9% over the last year, according to Zillow. But they are forecast to rise by a mere 1.3% over the next year.
3. The hottest markets will continue to be in the Pacific Northwest.
Housing market forecasts for 2017 suggest that Seattle, Portland and other real estate markets in the Pacific Northwest will continue to outpace the nation in 2017, in terms of home-price appreciation.
This housing market forecast is based on solid evidence. After all, the Seattle and Portland metro areas saw double-digit price growth during 2016, and the supply-and-demand situation that caused this hasn’t changed significantly. So these markets will probably see bigger home-price gains in 2017 than most other metros.
This housing market prediction has been echoed from several sources, including the folks at Zillow. Their 12-month forecasts for Seattle and Portland (through October 2017) call for price gains of 6.9% and 7.5% respectively, much higher than the 2.7% increase predicted for the nation as a whole.
Earlier this year Veros Real Estate Solutions, a company that specializes in property valuations and analytics, published a U.S. housing market forecast that singled out Portland and Seattle as two of the markets to watch over the coming months. Their forecast extended through June 2017.
According to the report:
“The top forecast markets are showing appreciation in the 10% to 11% range with the Pacific Northwest and Colorado having a lock on 8 of the top 10 … Seattle, Wash. (+11.2%), Portland, Ore. (+11.1%), Denver, Colo. (+9.9%) and other metropolitan areas in these same vicinities appear very strong over the next year.”
4. Mortgage rates will rise gradually in 2017 but stay below 5%.
This housing market forecast comes from the Mortgage Bankers Association (MBA), which recently predicted a slight rise in mortgage rates through the end of this year. The MBA expects the average rate for a 30-year home loan to reach 3.7% by the end of 2016, and to continue rising gradually throughout 2017.
Here is their latest forecast for 30-year mortgage rates, issued in September:
- Q1 2017: 3.9%
- Q2 2017: 4.1%
- Q3 2017: 4.3%
- Q4 2017: 4.4%
Of course, a number of analysts made similar predictions at the end of last year. The general consensus was that mortgage rates would rise gradually throughout 2016. But that did not happen. In fact, the average rate for a 30-year home loan has declined since the beginning of this year.
It goes to show, you have to take mortgage and housing market forecasts with a grain of salt. They’re an educated guess, but they don’t always pan out.
5. FHA and conforming loan limits could rise in some metro areas.
Most mortgage programs have size limits associated with them. For instance, there are “conforming” loan limits that dictate the maximum size for mortgage loans that can be sold to Fannie Mae and Freddie Mac. There are limits for FHA and VA loans as well.
All of these loan limits are based on median home prices, to some extent. And since prices have risen sharply in many cities this year, we could see some higher loan limits in 2017.
Loan limits vary by county and are generally the same across an entire metro area. For instance, all cities and counties within the Seattle metro area have the same loan limits. And that’s one of the places that could see higher limits in 2017. Home prices in Seattle (and a few other metro areas) rose by double digits during 2016. It would not be surprising to see federal housing agencies increase loan limits for some of these housing markets in 2017.