I get the sense that we’re on the verge of having a superb year in real estate in 2017. Yet when faced with low listing inventory, rising home prices and a first-time homebuyer market which is bogged down by student loan debt; something has to give in order for it to be a stupendous year. These are three real estate trends which we can expect heading into 2017.
Real estate inventory has been low and we shouldn’t expect that to change much until the heat of summer returns. Perhaps this trend sounds obvious as we approach the holidays, the hustle and bustle, hot cocoa and frigid temps. But what are some of the factors affecting inventory levels?
- Sellers are staying put and upgrading their homes
- Sellers are faced with increased pressure, not having other homes to move into
- Construction of new homes is anemic
- Renting, in many markets, is still a viable option
Lower interest rates often provide sellers with more buying power – consumer spending, the ability to save or the potential to remodel. Furthermore, frequently in the higher-priced home market, home prices haven’t experienced significant increases, yet upgrading the home (as long as the seller isn’t over-improving it) remains a productive hobby.
With a competitive 2016-2017 market, too often sellers have a fear of moving from their homes when they don’t necessarily have another home to move into right away. This pressure causes them to stay put. Many attempt to avoid contracts containing contingencies such as this, where a seller in the act of purchasing another property, needs to close on his/her property at the same time. Naturally, this can create more headaches (just ask any real estate professional).
New construction throughout much of the country has limited options for first-time home buyers as well as those looking to move-up or down in the market. We’re seeing demand outpacing the supply of new construction.
The affordability of renting in some regions has negatively impacted the pool of buyers and this can go both ways: While this means there are less buyers searching for homes to purchase, there are also landlords who don’t feel compelled to sell their investments, but rather reap the benefits of their revenue stream.
These are some of the key factors disturbing housing inventory levels. During the third quarter of this year, inventory began falling steadily – there are 4-to-6% fewer homes on the national market than there were earlier in 2016 (Zillow September Real Estate Report). According to a September report from the National Association of REALTORS® (NAR), there’s been a 7% drop, year-over-year, in homes on the market. In our market, we’ve experienced inventory hitting its lowest levels in a September month in over four years [year-over-year stats from the Greater Scranton Board of REALTORS® (GSBR)].
So with inventory being down, but demand increasing we have the housing phenomena of rising home values. The average sale price for a house in the Greater Scranton area is $142,436, which is up 4.1% year-over-year according to GSBR data.
Lately, there has been a fear of rising interest rates. If prospective homebuyers are truly worried about losing money via interest rates, they have a higher probability of entering the market. This trend coupled with lower than normal inventories drives up home prices. The Standard & Poor’s CoreLogic Case-Shiller home price index has reported its highest index level since October 2007. It’s actually quite fascinating. Some other factors which are motivating buyers are economic expansion, falling unemployment, rising pay and the prospect of deregulation over the next year or so (something president-elect of the United States of America, Donald Trump has been a proponent of). This is all great news for real estate despite some mounting buyer frustrations in this seller’s market.
Recently, the Citizen’s Voice ran this feature on home prices in the Greater Scranton area – Home prices up in several regional population centers.
Income-To-Debt Ratios Are Shrinking
For many home buyers, especially millennials, student loan debt has really been a barrier of entry into the real estate market. As a college post-graduate myself, I know the challenges that can arise in purchasing a home with student loan debt. NAR’s Student Loan Debt & Housing Report, which was released in June of 2016, cited student loan debt as a major hurdle to home buying for 71% of non-homeowners who were surveyed. Think about how this debt is affecting millennial buyers and our housing market – rising debt, falling homeownership rate.
With millennials now being the largest generation in our nation, superseding baby boomers, they’re essential for a healthy economy and a flourishing real estate market. The demand for homeownership is obviously there. This inflow of first-time homebuyers into the market will continue, but with income-to-debt ratios shrinking, other measures need to be deployed to add a stimulus to our economy. “The NAR estimates that one job is generated for every two home sales.” With that being said, I believe it’s imperative that our legislators find solutions that will prevent a “college-bubble” from bursting and alleviate some of this student loan debt as it relates to mortgage lending restrictions, and perhaps more importantly, survival in today’s America.
So as we’re faced with near historical lows for homeownership in our country (63.4% homeownership rate in Q3 of 2016); inventory, home prices and millennial debt present challenges for the upcoming year. Yes, there’s a healthy demand for real estate amidst low inventory levels, which is a great sign for the future. And yes, momentum at year’s end has been weaker than the beginning of 2016, but the potential for housing market growth in the months and years to come looks fairly promising.