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Thoughts on 2017 in this Rate Environment

Weekly Commentary - Rob Chrisman

 

Last week we discussed city living. What is the housing market going to be like in 2017? The inauguration is three weeks away, what is President-elect Donald Trump’s tenure going to mean for the housing market in 2017 and beyond for Opes Advisors’ clients?

 

It is well known that the construction labor workforce already has shortages, driving up labor costs making building homes more expensive in many areas where Opes Advisors lends. With Trump’s proposed immigration policies, it may worsen the shortage raising the cost of building new homes even more. But while building new homes is going to become more expensive, rent affordability should improve: incomes are on the rise and growth in rents are slowing. Apartment rental rate growth is expected to moderate in the next three years to 3.5 percent in 2016, 3.0 percent in 2017, and 2.9 percent in 2018. This with the income growth is going to make renting more affordable.

 

But renters miss out on home price appreciation, and 2016 was the year of the rising home prices. Our Mortgage Advisors have clients that must move further and further into the suburbs to seek out affordability. This also means that people are getting further and further away from good transit options which leads to more Americans driving to work; the first rise in the percentage of people who drive to work in a decade. As noted last week, cities may focus on denser development of smaller homes close to public transit and urban centers. And the continued buildup of inner city cores.

 

While home values rocketed up 4.8% in 2016, they should slow slightly in 2017 – but not much. Some analysts believe that in 2017, recent trends will reverse course as the housing market’s economic recovery enters a new stage: even with growing home values more millennials are going to become homeowners, driving up the homeownership rate. And doesn’t everyone want to live in California?