Will Home Prices Continue their Climb in 2017?

Housing market with price bubbles above houses in skyNearly a decade after the housing market crash and following recession of the U.S. economy, a heavy focus has been placed on the trends affecting potential home buyers moving forward. Millions of homeowners found themselves underwater on their properties, meaning more was owe on the mortgage than what the home was worth. This led to a wave of foreclosures and short-sales that ultimately left countless regional real estate markets depressed in terms of home prices. But since the market fallout, home values have been on the rise, and combined with historically low interest rates on new mortgages, the national housing market has been strong for the last few years. Most buyers and sellers now want to understand if the trend will continue.

Home Inventories

One of the reasons home prices across the country have skyrocketed up to pre-recession levels is the amount of inventory available for buyers. Owing more on a home than it is worth makes the asset seem worthless to some, as it would require an outlay of cash to sell. The remaining balance on the mortgage would have to be paid off in order to transfer ownership – a plight most homeowners who were underwater simply could not stomach. Because so many homeowners were hesitant to put their homes on the market due to suppressed home values, inventory of available homes has been light. According to the National Association of Realtors, home inventories remained at the four-month level, below the six-month mark that is considered healthy for the housing market. The lower number of homes available for sale pushed prices up by an average of 5% over the last three years.

However, this year it is anticipated that home inventory levels will rise for several reasons. First, the number of homeowners underwater on their mortgages fell to 10.8% in the third quarter of 2016, far below the 29% cited in 2012. As more owners feel as though a return on their real estate investment is imminent, more homes are listed for sale. Additionally, home builders have pledged to help ease the supply of new homes available to buyers by increasing new home builds by 10%. Also, there is positive movement in the jobs environment, with data showing an average annual wage increase of just under 3% for most working adults. The combination of greater inventory and a positive outlook on income potential means more individuals will feel confident in their ability to move to a new home – and sell their current.

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The Uncertainty Surrounding Interest Rates

Although there has been upward movement in home values in recent years, experts believe that increased inventory, added new home builds, and growing pay for workers will put a damper on home values in the coming year. Adding to the slowdown of rising home prices is the uncertainty over how high mortgage interest rates will rise by the end of 2017. Over the last four months, upward movement in the interest rate market has pushed buyers and sellers into action.

While mortgage interest rates remain at low levels, currently under 5%, there is little doubt that the average rate for a conventional 30-year fixed mortgage will creep up to 4.5% by year-end. As interest rates rise, some buyers may be pushed out of the market altogether, leaving sellers no choice but to reduce the sale price of their home to compensate for the higher cost burden buyers face. The interest rate movements have the potential to shrink the value of homes, but most feel confident that homeowners in strong real estate markets will continue to experience increasing values between 2 and 3% for the remainder of this year.

Posted on May 12, 2017 by in Mortgages

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