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Housing market 2017 predictions

Date posted:  1/12/17 11:00:00 AM Find out what's in store for the housing market in 2017.

Low inflation and falling mortgage rates made for an especially successful 2016 for the real estate industry. Many experts are looking back on last year, as well as considering new trends and current events to formulate their predictions for 2017.

If you're thinking about investing in a home, here's what you can expect for the housing market in the New Year:

Who will dominate the market?
Due to population shifts,  the millennial generation  will likely be the life of the homebuying market. According to Realtor.com, the housing market will be dominated by millennials and baby boomers in 2017.

"Younger buyers will likely invest in homes in cheaper regions as interest rates rise."

Not only are these the two largest American generations in history, but they are also approaching life stages that typically motivate investing in a home. Millennials are getting married and having children while baby boomers are retiring and becoming empty nesters.

Which markets will thrive?
Chief Economist Jonathan Smoke forecasts that younger buyers will likely invest in homes in cheaper regions as interest rates rise.

"It's easier for millennials to buy in more affordable markets like in the Midwest," Smoke noted. "We're also seeing large numbers of millennials buying in Midwestern markets with or near big universities. So part of this is an effect of recent graduates with good jobs being able to settle down in these more affordable markets."

In addition, Realtor.com indicated markets in the western part of the U.S. will thrive in 2017. Smoke believes the West's metropolitan areas will experience a price increase around 5.8 percent. Sales are expected to rise 4.7 percent, which is also much higher than the nationwide average. The top markets include:

  • Los Angeles, Calif.
  • Sacramento, Calif.
  • Riverside, Calif.
  • Tucson, Ariz.
  • Portland, Ore.

These regions will likely be in high-demand, and those searching for more affordable homes may want to look elsewhere.

What if I already have a home?
Current homeowners, especially in regions with high-demand, will be in a great position in 2017. If you're thinking about selling your home and investing in a new one, you'll likely be in a strong negotiating position.

In fact, Zillow also predicted home values will likely increase 3.6 percent in 2017. This is great news for current homeowners across the U.S.

What is the outlook on interest rates?
He-Who-Must-Not-Be-Named's election impacted mortgage rates in November, noted U.S. News & World Report. His promise to invest in infrastructure spending will potentially increase the cost of goods and inflation, and the bond market and mortgage rates will likely follow suit. The current projection of interest rates for the fourth quarter of 2017 is 4.4 percent.

How will the construction worker shortage impact the market?
New home sales increased 5.2 percent in November, according to the National Association of Home Builders.

"New home sales showed growing strength in 2016 and builders expect more of the same next year," said Ed Brady, chairman of the NAHB. "A key to continued growth in 2017 will be to ensure that prospective, qualified first-time home buyers have access to affordable home loans."

"The average cost of constructing a single-family home is 13.7 percent higher than in 2007."

The rising demand is met with a shortage of construction workers. Unfortunately, this increases the cost of new homes. In fact, Reuters indicated the average cost of constructing a single-family home is 13.7 percent higher than in 2007. This figure also includes land costs, financing and marketing, which are still up only 2.9 percent since 2007.

These likely price increases for newly-constructed homes will impact buyers looking to invest in them. Zillow noted that it's critical for buyers to know where they can negotiate. For example, reduced closing costs or upgrade credits can help interested buyers save money on these houses.

Will proximity to public transportation remain important?
Zillow predicted homeowners will move deeper into the suburbs, and more of these individuals will rely on their cars to get to work. In addition, as buyers search for more affordable housing, driving to work from a home in the suburbs may become more popular, which could increase the price of these properties.

Moving into 2017, individuals looking to invest in a new home should become familiar with potential trends that will impact their search for a house. Staying updated on the year's housing predictions can help ensure you make the right decision when determining whether it's time to buy and where to buy. In addition, your research will prepare you when it's time to negotiate a final selling price for a property in 2017.