When it comes to trends, a wishy-washy economist would probably answer, “It depends.”
But since we are not the least bit wishy-washy, we’ll take a firm stand and provide you with real estate market prediction saying it’s at least warm in most parts of the country, and even hot in a few.
However, some laws recently enacted at the state level are providing pockets of uncertainty and even significant downturns in some areas.
Take Illinois, for example. The state recently passed a tax increase on personal income and on businesses. People impacted by these taxes may be planning to head for the borders sooner rather than later. Keep a sharp eye out for potential listings, quick sales, and perhaps some bargain-basement prices for potential buyers.
Then there’s Oregon. Long thought to be consumer-friendly because it has no sales tax, the state legislature continues to veer farther and farther to the left (can you say “legalized marijuana?) and is stealthily enacting sales tax, one commodity at a time. Recently a tax on bicycles sales was implemented, based on the somewhat far-fetched assumption that bikers use the roads, like automobiles, and therefore they ought to pay. Perhaps only bike sales will be affected, but it’s a trend to watch.
There’s a limited inventory of homes for sale nationwide, meaning prices are likely to rise in most areas. According to the most recent report (May 2017), the number of homes on the market dropped at its fastest pace in almost four years. Homes stayed on the market for just 77 days.
Home shoppers nationally had 9.4 percent fewer homes to choose from in May, compared to the same month a year ago. And it’s likely to stay that way through 2017. Also, because the inventory of available homes is so low, it is very clearly a seller’s market.
So if this is the trend, it’s time to get out those listing contracts and get to work. But before you do, let’s look to see what’s behind these statistics and trends. Here are a few fast facts.
- Watch out for the Millenials. Millennials are entering their peak nesting years right now. They are ready to move out of grandma’s basement and into homes of their own. They are often naïve, and first-time buyers besides—but what an opportunity!
- Seniors are not far behind. But they are not starting out—they are downsizing. Watch towns with a high percentage of people over 65 and you’ll probably find a glut of bigger, higher priced homes for sale and few if any smaller homes available. Combine that with:
- Your biggest headache: the overall inventory squeeze. In addition to the declining inventory described above, construction of single-family homes nationwide still hasn’t recovered from the bust that followed the financial crisis. Nationally, inventory is 9% lower than it was in 2016. All but four of the 35 largest markets now have fewer homes for sale than at this time last year.
Lawrence Yun, chief economist for the National Association of Realtors says, “We’re seeing low inventory in places not usually associated with housing shortages—places like Nashville, Raleigh, and even Kansas City.” If any of these is your market area, you may be looking long and hard to find something that will suit your buyers.
- The good news: prices are rising. Home values should rise, although not quite as much as they did in 2016. Depending on market location, most analysts think prices will keep climbing, at least in the short term, probably between 3.4% and 4.5%.
- The bad news: interest rates are also rising. The 30-year fixed is pushing 4% in most markets right now, and the Fed is hinting at more hikes later this year. This could be good in the short term, as some buyers will feel pressured to act quickly and lock in a lower rate. But for first-time buyers or those with less than stellar credit, it could push some buyers out of the market.
Other trends to watch:
- People will move farther out from city centers to get lower priced homes.
- New construction will be pricier, due to increased labor costs. The deportation of illegals is affecting the labor pool in some areas.
- Millenials will head for the Midwest, especially university towns like Madison, Wisconsin, Columbus, Ohio, or Minneapolis, Minnesota.
- West coast markets will outperform most other parts of the country. Watch Phoenix, Tuscon, Seattle, and Denver.
- Big cities will see fixer-upper activity and development of small homes near transportation hubs. (Source: CBS MoneyWatch).
What does all this mean to you? You know your own market better than any real estate trend predictor ever will. So take this overview and superimpose it over your own little corner of the world. Some of these predictions may be true for you, some may not. Develop your own list of what you believe to be true about your market and act accordingly. The trend can be your friend for the rest of 2017 if you know how to use it to your advantage.