Steve Coker, CFP
2017 Housing Forecast
It is spring and that means that home selling season is in full swing! For 2017 housing prices are set to keep growing, though at a slower pace compared to the last few years. Of course, unlike stock investing, in real estate, as it is said, ‘everything is local’. Let’s dig into the 2017 forecasts for the nation, California, and some of our local regions.
As with many investments, housing prices are a function of the strength of the economy, and the US economy continues to show positives: unemployment is low, wages are rising, and the probability of a recession in 2017 is low. However, housing is particularly sensitive to interest rates since most buyers fund their purchases with large mortgages. Higher interest rates result in higher overall cost of a home at a given price point, and therefore, rising interest rates are a headwind to rising housing prices. In 2017 interest rates are expected to rise moderately, producing a slowing growth, but a significant spike in rates could be a potential threat.
Given these fundamentals, national average home values are expected to rise by an average of 3.9% according to Realtor.com. But when we are investing in real estate we aren't investing in the national averages, and so we all want to know what is happening in our local market. Let’s look at California and then a few California counties.
According to the California Economic Forecast, California continues to grow faster than national averages, and demand for housing is strong in the state. However, as those of us who live in California are aware, affordability is low, making further increases challenging, especially at the same rate of growth that we have seen over the past few years. The net result is that California is expected to see modest price increases in 2017. The California Association of Realtors calls for a 4.4% increase in 2017, down from a 6.2% increase in 2016.
Looking even more local, according to the California Economic Forecast, home prices in Ventura County are expected to rise 5.9% in 2017, slightly higher than the California average, and home prices in Tulare County are expected to rise by 5.4%, down from 9.6% growth in 2016.
So there it is, the outlook for local housing prices. Of course, be wary of taking this money to the bank. Forecasters can never predict the future and the unexpected can always occur. Nonetheless, the fundamentals do look strong for California and housing should continue to benefit, though tempered by rising interest rates and poor affordability.
“Realtor.com 2017 Housing Market Forecast” http://research.realtor.com/2017-national-housing-forecast/
Schniepp, Mark. “2017 California County-Level Housing Market Forecasts” California Economic Forecast March, 25 2017