Eight Real Estate Trends to Watch in 2017

January 11, 2017
Commercial redevelopment
This year could bring more commercial properties being revamped into residential developments.

Price appreciation and low inventory dominated real estate news in 2016. Looking ahead, housing market experts foresee a moderating yet healthy real estate market in 2017. The two largest population groups—millennials and baby boomers—are anticipated to have the biggest impact on real estate, along with rising mortgage rates and increased access to credit.

Here are some of the top trends to watch this year.

Rising prices and rising net worth: While rising prices challenge first-time buyers, homeowners benefit from increased home equity and a higher net worth. According to CoreLogic, home values were up 7.1 percent year-over-year in November 2016, and home equity wealth accumulated by Americans has nearly doubled in the past five years as a result. Values have been rising for a few years and CoreLogic says the average homeowner gained $11,000 in home equity in the past year. A total of $1 trillion could be added this year if home prices continue to rise by the company’s projected 5.2 percent. Even if the gains come in lower—Moody’s predicts a 3.5 percent rise and Realtor.com, a 3.9 percent—the outcome is still positive for the year.

Higher mortgage rates: Mortgage rates jumped to just over 4 percent after the Presidential election in November. They are anticipated to stay between 4-5 percent in 2017, which is higher than recent rates but still comparatively low historically. Older borrowers may remember rates of 18 percent in the 1980s, so even 5 percent seems like a bargain to that. Homeowners who want to refinance and prospective buyers should consider locking in a loan as soon as possible since mortgage rates are not expected to drop this year.

Loosening of mortgage restrictions: According to the Mortgage Bankers Association’s Mortgage Credit Availability Index, mortgage approvals are easier to get, with the pendulum slowly swinging back from overly restrictive guidelines. In addition, low down payment loans are more readily available than in recent years. Jumbo loans also are easier to qualify for and have competitive interest rates with conforming loans. Higher mortgage rates mean lenders will get more competitive for purchase loans as their refinance business fades. Lenders also anticipate looser regulations from the new administration.

Inventory remains tight: The lack of homes for sale has been driving prices up for the past several years and frustrating buyers, and the issue shows no sign of easing this year. The National Association of Realtors says nationwide inventory was down 9.3 percent year-over-year in November and has continually fallen for the past 18 months. At the end of 2016, there was a four-month supply of homes for sale, far below the six months of supply that is considered a healthy market. In the Philadelphia metro area, for example, inventory was down 23 percent year-over-year in November, according to Long & Foster’s Market Conditions. Similarly, inventory was down in the Washington, D.C., area by 23 percent and in Richmond, Virginia, by 19 percent.

Repurposing of buildings for residential use: With urban areas and close-in suburbs lacking space for residential development, 2017 will bring more commercial properties being revamped into residential developments. Washington, D.C., has already seen a few office buildings converting into mixed-use developments with both office space and residential space. The Adele, a new residence in downtown D.C., is a great example of this type of transition. Churches in Baltimore and D.C. whose congregations have shrunk or moved to the suburbs are also being sold for redevelopment into unique condos.

Millennials in the market: The number of first-time buyers, most of whom are millennials, increased to 35 percent of all buyers, according to the National Association of Realtor’s 2016 Profile of Home Buyers and Sellers, up from 32 percent in 2015. While that doesn’t quite reach the norm of 40 percent of the market, housing experts anticipate that more millennials and first-time buyers will purchase homes this year. Not only is job security increasing for this demographic group, but also more millennials are beginning to form households, marry and have children, all of which trigger a home purchase.

Baby boomers on the move: The second-largest demographic group—the baby boomers are reaching retirement age in record numbers, with 10,000 turning 65 each day. As their home equity increases, more of these boomers are anticipated to move, sometimes to new markets. Among the popular destinations for retirees, North Carolina and South Carolina offers numerous communities that appeal to residents of the Mid-Atlantic and Northeast who are looking for warmer weather and, most importantly, tax advantages. North Carolina residents, for example, are exempt from paying state income taxes on federal and military retirement benefits thanks to a tax settlement known as the Bailey exclusion.

A return to the suburbs: Census data released in 2016 showed that more people moved to the suburbs than into cities in 2015, with urban counties growing by 0.8 percent to about 77 million people and suburban counties growing by nearly 1 percent to about 159 million residents. That trend is expected to continue in 2017, particularly as first-time buyers and downsizing baby boomers look for affordable homes. But the suburbs are changing, with the development of more mixed-use, walkable neighborhoods with urban-style amenities. The John Burns Consulting Group says 80 percent of new homes are being built in what they term “surban” areas, which offer the safety and good schools of suburbia along with the walkability and excitement of the city.

Overall, a strong market is expected in 2017, and professional Realtors at Long & Foster | Christie’s International are here to help you, whether you’re planning to buy your first home or retire to a new location. Contact us today at LongandFoster.com.