Home prices are expected to have increased by about 5% in 2016. According to the latest Case-Shiller report, the index reached a new high in September, surpassing the previous record set in June of 2006.
For prospective home buyers, higher prices combined with rising interest rates make buying a home a bit more problematic. That doesn’t mean that home sales will fall off a cliff, but rather that they will moderate.
According to Jonathan Smoke, chief economist for Realtor.com, there are still reasons to be optimistic about 2017 home sales:
I would characterize our 2017 forecast as a moderation, as opposed to a slowdown. The pace of growth is still strong and, for pricing, still represents an above-average level of appreciation.
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Smoke sees five trends driving the housing market in 2017:
- Millennials and boomers will move markets as the younger generation get into the market and boomers look to downsize and sell.
- Millennials will be attracted to the Midwest housing markets, particularly Madison, Wisconsin; Columbus, Ohio; Omaha, Nebraska; Des Moines, Iowa; and Minneapolis, Minnesota where homes are more affordable.
- Price appreciation will slow to an estimated 3.9% in 2017, but a lack of inventory will keep prices rising at an above-average pace.
- Housing inventory remains a challenge and that is not expected to change in 2017.
- Metro markets in the West are expected to see price increases of 5.8% and sales increases of 4.7%, much higher than in the rest of the country.
In an earlier report, Realtor.com forecast mortgage rates to reach 4.5% in 2017 and sales of existing homes to increase by 1.9%. New home sales are forecast to increase by 10%, while construction of new homes is expected to rise by just 3%.
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