Market Research Monday: 2017 Housing Forecast
Over the past couple of weeks I have heard from some of the leading real estate experts and economists as they gave us their predictions for what 2017 holds as far as the real estate market goes, and I want to share a synopsis of what I learned with you. Since inauguration day, particularly, many of my friends have been asking me what to expect this coming year – is it a good time to buy? Or sell? And what will happen to home prices and interest rates?
Well have no fear, market research is here.
Every February the Salt Lake Board of Realtors hosts a housing forecast for the year to come along the Wasatch front, and this year they had a couple of knowledgeable experts give us their opinions – James Wood from the Policy Institute at the University of Utah, and Lawrence Yun, the chief economist of the National Association of Realtors. In addition to this, I had the opportunity to watch the found of Keller Williams, Gary Keller speak live about his predictions for the year.
In short, the market is doing well, and is expected to continue to do well through the next year with increasing home prices and the number of homes sold. Although, as you can see – the real estate market is constantly changing and is more complex than ever, which is why more people than ever (92%) are using a Realtor to purchase or sell their home.
Recap of 2016
Before we look at this year, how did we do in 2016? Pretty darn good! We had the BEST year since 2006!
Via Salt Lake Board of Realtors Housing Forecast, Feb 2017
Add to this that the median days on market in Utah was at an all time low of only 13 DAYS, and it’s pretty mind blowing. Houses are selling like hotcakes! Not only are sales doing well, but across the nation the number of distressed sales (foreclosures and short sales), the number of upside down homes, and loan delinquency rates have all reached was is expected to be a bottom.
What Are the Driving Factors of Utah’s Awesome Real Estate Market?
I don’t know if you’ve all noticed, but Utah is GROWING! From July 2015 – July 2016 Utah’s population has grown by 2.03% (THAT’S A LOT!). So much in fact, that we are the fastest growing state in the nation. You can compare that to the national population growth of 0.7% during that period, which is an all time low since the Great Depression. Even more surprising is the fact that only 60% of that growth in Utah is due to natural increases (births, deaths…), the other 40% is from net migration. That’s 60,585 new residents in the state!
And all those people need places to live, which is part of what’s driving our housing market up. Too much demand and not enough supply.
Via Salt Lake Board of Realtors Housing Forecast, Feb 2017
Another big thumbs up for Utah is for its job market. Utah has been in the top 2 or 3 in the nation for job growth consistently for the past 3 years, and that trend is expected to continue with an estimated 3.5% job growth in 2017. We stick out in comparison to the rest of the country in two big industries: technology (dubbing us “Silicon Slopes”) and manufacturing. This second one was news to me, and it appears that while most of the country has not recovered many manufacturing jobs since the recession, Utah has risen back to pre-recession levels. Salt Lake City as a whole, including Park City, has experienced a total job growth of 33% since the year 2000 (National average = 11%).
The stability of our economy and the sheer growth we are experiencing creates upward pressure on our market. In fact, Business Insider named three of our cities as being in the Top 10 Hottest Markets of 2017: #3 Provo, #5 Salt Lake City, #8 Ogden.
Let’s Talk Demographics
A big part of the American Dream is to own a home, and 90% of the population says this is part of their future. Did you know that the average home owner’s net worth is 35 times that of the average renter?! No wonder you all want to buy a house – it’s a no brainer!
Then why is our national home ownership rate near a 50 year low?
It’s no surprise that the millennial population has been hit the hardest in this area, and here are a few reasons why:
1. Tuition prices have spiked, and student loan debt has TRIPLED in the past 10 years, totaling $1.3 Trillion in 2016. This is equal to an average monthly payment for students of $333 per month.
2. Rental rates are increasing. Utah’s population is up, and vacancy rates are down, which means rent hikes! In apartment complexes there are no areas along the Wasatch Front experiencing a vacancy rate above 5%, and downtown is only 2%. Some people say that this high demand is causing rent prices to increase about 11% per year. It makes it difficult to save money to purchase a house when your rent is so high!
3. There is a shortage of starter homes within the typical first time home buyer budget – we’ll touch on this in a second.
Housing Shortage – New Construction
As we’ve talked about, part of the reason we have such a low inventory of homes for sale and the prices are rising is due to increased demand and an influx of new residents. But we aren’t the only one’s experiencing low inventory, as much of the nation has seen this in their markets recently as well, and it has a lot to do with new construction homes. Historically, there are approximately 1.1 million homes built in the U.S. every year, but over the past 7 years the building rate just hasn’t been the same, and when you add up the shortages each year there are 2.8 million fewer new homes than we would have expected. Add to this that the homes being built are overwhelmingly in higher price ranges than before, and you can see how this trend has contributed to an inventory shortage in the lower price ranges (those that a first time home buyer can afford).
Via Gary Keller’s Vision Speech at Keller William’s Family Reunion in Las Vegas, Feb 2017
2017 Housing Forecast
Now that we have a little history knowledge from the past year, on to the good stuff! The following are the major points compiled from the different experts who have recently spoken.
1. Mortgage rates are expected to rise 2 or 3 times this year, though experts are not anticipating any devastating increases.
2. While numbers are showing a pent up demand for housing compared to 2000, it is expected that the supply will improve some over the next year.
3. Affordability will decline. Home prices and interest rates are rising, while the median income is not increasing at the same rate.
4. A higher percentage of millennials will become home owners.
5. Home prices are expected to go up 5-7% and the number of homes sold will increase 3-5%.
6. Economy changes: GDP increase 2.1%, Jobs increase 2.1 million, and CPI inflation increase 2.5%.
Impacts of Politics & Policies Nationally
Many are wondering what kind of changes we can expect from our newly elected government leaders, and the following are speculations from the experts on what may be down the road:
1. Fannie Mae & Freddie Mac – it has been proposed that they be privatized. Mortgage rates would likely be much higher without the government guarantee.
2. Dodd-Frank – there is talk of repealing it. One effect of this may be an increase in construction loan availability.
3. Tax Simplification – proposed that mortgage interest no longer be deductible on taxes, which would negatively impact a large portion of home owners and would reduce affordability of owning a home.
4. EPA, Land Use & Development – expected relaxation of regulations will cause a boost in the amount of development and new construction.
5. Immigration – may create a need for more construction workers as immigration laws are more strictly enforced and/or changed
6. Loosening Credit Conditions – credit conditions tightened significantly following the crash, and it’s expected that they will be loosened in an effort to get home ownership rates back up to 65% (which is considered normal).
7. FHA Mortgage Insurance Premium Reduction – late last year it was announced that the mortgage insurance rate that FHA buyers are required to pay was going to be reduced, and it is currently put on hold. Many are confident that it will be re-approved by the summer, which will help with affordability of home ownership.
I know this is a lot of information, and trust me, there was a lot more provided in the speeches I listened to from the NAR Housing Forecast and KW’s Family Reunion, including many, many graphs and numbers. If you have any questions about the information presented here or if you’d like more information on any given point, please reach out to me! I would be happy to share my wealth of knowledge with you!
Heather Heaton 612.356.4384