2017 real estate predictions

Source: OC Housing News

Bold 2017 Real Estate Predictions

Whatever is going to happen in the housing market in 2017 depends entirely on the course of mortgage rates. If mortgage rates remain below 4.25%, both sales and house prices will rise next year. The economy is improving, and with an improving economy will come increased demand. If this demand is amplified by super-low rates, housing will do well. If mortgage rates settle between 4.25% and 4.75%, sales will be down while prices drift slowly upward. A reduction in sales volume always proceeds price, and as long as mortgage rates stay below 4.75%, the pressure on pricing won’t be enough to overcome the inventory.

If Mortgage Rates Rise a Lot

If mortgage rates rise above 4.75%, sales volumes will be severely impacted and prices may drift gently lower. The increased cost of financing will not allow buyers to bid high enough to support current prices. The discretionary sellers active in the market will be forced to lower their prices if they want to sell. The activity of these few discretionary buyers will cause prices to drift down at higher mortgage rates.

What’s ahead in 2017

My first prediction is above: sales will be weaker in 2017 than 2016 due to rising mortgage rates. This will surprise all the pundits who claim that rising wages and an improving economy will overcome the impact of rising rates.

Perhaps this one isn’t controversial, but I haven’t heard it articulated elsewhere: First-time homebuyers will be priced out of every market in California. The median home prices will rise above the FHA loan limit across the state leaving first-time homebuyers without inventory within their price range.

Nearly all new construction in California will be high-density, mostly apartments, but some attached for-sale product as well.

Dodd-Frank and the Consumer Financial Protection Bureau will survive unscathed by Republican assaults (as will most of ObamaCare). Credit standards will not loosen significantly.

Trump will pass tax reform that includes a higher standard deduction, weakening support for the home mortgage interest deduction.