What’s ahead in 2017 for housing?

The 2017 national real estate housing market will be a year of slowing, yet moderate growth, set against the backdrop of a changing composition of home buyers and a post-election interest rate jump that could potentially price some first-time buyers out of the market, according to a forecast from realtor.com.

The  forecast says the market is expected to slow compared to the last two years. Home prices are anticipated to increase 3.9 percent, and existing home sales are forecast to rise 1.9 percent to 5.4 million homes. Interest rates are expected to reach 4.5 percent because of higher expectations for inflationary pressure in the year ahead.

Realtor.com is forecasting the homeownership rate will stabilize at 63.5 percent after bottoming at 62.9 percent in 2016.

New home sales are expected to grow 10 percent, while new home starts are expected to increase 3 percent. The forecast is based on GDP growth of 2.1 percent, a 2.5 percent increase in the consumer price index and unemployment declining to 4.7 percent by the end of the year.

Before the November election, demographics and an improving economy were laying the foundation for a substantial increase in first-time buyers in 2017. However, because of mortgage rate increases during the past few weeks, realtor.com predicts first timers will face new hurdles as they navigate the qualification and buying process.

“We don’t expect the outcome of the election to have a direct impact on the health of the housing market or economy as we close out 2016. However, the 40 basis points increase in rates in the days following the election has caused us to increase our interest rate prediction for next year,” Jonathan Smoke, chief economist for realtor.com. said in a statement.

Top housing trends for 2017

The 2017 forecast from the online real estate source operated by News Corp.  also predicts the top five housing trends of 2017.

1.           Millennials and boomers will dominate the market — Next year, the housing market will be in the middle of two massive demographic waves — millennials and baby boomers — that will power demand for at least the next 10 years. Although increasing interest rates have prompted realtor.com to lower its prediction of millennial market share to 33 percent of the buyer pool, millennials and baby boomers still will comprise the majority of the market. Baby boomers are expected to make up 30 percent of buyers in 2017. Since they’re less dependent on financing, they are anticipated to be more successful when it comes to closing.
2.     Midwestern cities will continue to be hotbeds for millennials — Midwestern cities are anticipated to continue to beat the national average in millennial purchase market share in 2017 with Madison, Wis.; Columbus, Ohio; Omaha, Neb.; Des Moines, Iowa; and Minneapolis leading the pack.
3.     Slowing price appreciation — Nationally, home prices are forecast to slow to 3.9 percent growth year over year, from an estimated 4.9 percent in 2016. Of the top 100 largest metros in the country, 26 markets are expected to see price acceleration of one percentage point or more with Greensboro-High Point, N.C.; Akron, Ohio; and Baltimore-Columbia-Towson, Md., experiencing the largest gains.
4.       Fewer homes on the market and fast moving markets– Inventory is currently down an average of 11 percent in the top 100 metros in the U.S. The conditions that are limiting home supply are not expected to change in 2017. Median age of inventory is currently 68 days on the market in the top 100 metros, which is 14 percent —or 11 days — faster than U.S. overall.
5.       Western cities will continue to lead the nation in prices and sales — Western metros in the U.S. are forecast to see a price increase of 5.8 percent and sales increase of 4.7 percent, much higher than the U.S. overall. Realtor.com’s  2017 top five housing markets based on price and sales gains are: Phoenix-Mesa-Scottsdale, Ariz.; Los Angeles-Long Beach-Anaheim, Calif.; Boston-Cambridge-Newton, Mass.-N.H.; Sacramento–Roseville–Arden-Arcade, Calif.; and  Riverside-San Bernardino-Ontario, Calif.