Housing Industry Growth Unclear as the Nation Awaits Policy Decisions.
Housing affordability, as in any market, is controlled by supply and demand. Currently, at least in the affordable housing sector, demand is exceeding supply. This news isn’t all bad however. Home Sellers are experiencing the advantage known as ‘Seller’s Market’ for the first time in many years.
My viewpoint has always been that the fair, alternating balance between Seller’s Market and Buyer’s Market can only be healthy for the industry and for the economy in general. If affordability has too long a reign then equity would never build to the extent that makes Real Estate a good investment. Home Buyers should consider the Seller’s Market their future insurance… a safeguard of their investment.
According to economists all-out growth in the housing market this year will hinge on administration policies, with the Fannie Mae Economic & Strategic Research Group expecting uncertain wage forecasts to curb affordability unless incomes improve to match rising prices. Hopefully the recent movement toward a higher minimum wage will have a trickle-up effect and bridge some of the housing affordability gap. Additionally, mortgage interest rates remaining in the very affordable range should encourage home buyers to jump in to rather than wait out the market. Holding out for a Buyer’s Market, one where the supply of homes for sale outpaces the number of buyers, could backfire with the long-term consequence of a higher interest rate.
“We expect the housing expansion to continue, albeit at a more moderate pace than last year given continued pressure on affordability,” says Doug Duncan, Fannie Mae chief economist. “Depressed inventory, particularly in the more affordable segments, will likely constrain sales and push home price gains that outpace income growth. A faster pace of monetary tightening, unless accompanied by a stronger increase in household income, also poses downside risk to housing.”
A recent affordability measure by the National Association of REALTORS® (NAR) and realtor.com® confirms a gap, especially for those with lower incomes.
The Fannie Mae Group’s recent Economic and Housing Outlook for February forecasts the economy to grow 2.0 percent in 2017, a minor gain from 1.9 percent in 2016.
In late February Fannie Mae chief economist expressed his concerns. “Last month we revealed our theme for the year, ‘Will Policy Changes Extend the Expansion?’ That question still hovers as the month-old administration begins enacting its agenda,” Duncan says. “Timing effects make it unlikely that we’ll see materially positive impacts stemming from any fiscal stimulus or deregulation this year, while immigration and trade policy pose downside risk. Any upside risk is likely to come from increased business investment based on expectations of policy change, enhancing prospects for after-tax profits.”
Deregulation takes time the the entire industry; Realtors, Lenders, Government Agencies, the Stock Market, are standing by in the ready to react to new administration policies.
One outlook projects existing-home sales will reach 5.646 million by the end of the year, while single-family starts will expand to 880,000. The median existing-home price is projected to be $245,000, while the median new-home price is projected to be $327,000.
The 30-year fixed-rate mortgage, which moved above 4 percent following the election, is projected to top-out at an average 4.3 percent by end of year.