What NAR Expects In 2017

Editor’s Note: Dennis Fassett is a former corporate finance executive turned real estate investing “Cash Flow Mercenary.” Dennis specializes in single-family and multi-family cash flow properties and thoroughly enjoys assisting his fellow investors with their own strategies, including how to buy your first apartment building.

As an ongoing contributor to Mogul’s “Market News Updates,” Mr. Fassett provides us with his own unique, lively, and thought-provoking commentary on the timely industry news and events of today that are impacting our industry. And be sure to check out his other super-helpful Market News Updates. For now, enjoy...

From Dennis Fassett, Cash Flow Mercenary...

I don’t know about you, but my pulse rate goes up whenever I hear that the National Association or Realtors has made a new set of predictions.

Well I almost got that out with a straight face. But it’s NAR, you know.

To get a handle on expectations, they did a couple of surveys recently to come up with their take on what 2017 holds for the market.

At a high level, here’s what they have forecast:

Existing-home sales are forecast to muster only a small gain in 2017 because of increasing mortgage rates and shrinking consumer confidence that now is a good time to buy a home
68% of homeowners think now is a good time to make a home purchase compared to 82% in December 2015
Sales are forecast to grow roughly 2% to around 5.52 million
The national median existing-home price rose to around 5% in 2016 and is expected to rise to about 4%
Mortgage rates are expected to reach around 4.6%

They also reported that the real estate market did well and existing sales closed in 2016 3.3% higher than 2015 and reached around 5.42 million, which was the highest level since 2006 when sales totaled 6.47 million.

With the results of the survey, they quoted a Realtor running an association as saying:

“Existing-home sales are expected to see little expansion in 2017 because of affordability tensions from rising mortgage rates and home prices continuing to outpace income growth.”

And that:

“Ultimately, the market needs to see a growth in for sale inventory, otherwise
the nation’s low homeownership rate will struggle to rise in 2017.”

Trends and predictions NAR expects in 2017

Tight inventory conditions will continue

NAR’s data shows that the supply of existing homes for sale is insufficient, and new home construction is not meeting demand.

homeowner More buyers are competing for a fewer number of affordable homes than a year ago, which will likely continue in 2017.

Increasing home prices

With demand rising and listings scarce in many markets, NAR forecasts home prices will increase nationally about 4% in 2017.

In cities with the tightest supply, prices could expand above double digits.

Rising mortgage rates

The recent rise in mortgage rates will likely continue in 2017 with additional increases.

With inventory tight and prices already rising far above incomes in some areas, the unwelcoming sign of higher borrowing costs only adds to the difficult barrier of entry for many prospective buyers.

Waning consumer confidence

Declining affordability in many parts of the country has been weakening consumer morale. Rents and home prices outpacing incomes and scarce supply in the affordable price range will continue as a prominent headwind for many prospective buyers this year.

So…

Overall, NAR thinks 2017 is going to be a good year for real estate. Yes, there will likely be affordability issues in the more expensive areas and interest rates are expected to increase...

But the rest looks great for investors.