As most of you know, I update my website monthly with a review of current local housing market results. By examining the same economic factors on a regular basis, I can give buyers and sellers reliable and timely advice. It would be easy for me to provide my readers with a subscription to a newsletter that provides a national outlook, but my value to you as a real estate advisor is in knowing what is happening on a local level, as it happens. I also provide this annual review and forecast for the coming year.
2016 showed steady and healthy improvements in the economy. The United States is currently enjoying full employment (4.2%), a rising GDP, wage increases, and job gains. Job creation was however below expectation for economists and the annual growth rate was less than predicted. Home sales currently are the highest since February 2007 when the Recession began, but they still are $50,000 below the pre-recession sales prices. First-time buyers were at a 30 year low in 2015, but made gains to almost 50% in 2016. 61% of those first-time buyers were under the age of 35. The availability of starter homes, however, have dropped by 10%, making it harder for these young buyers to get into the market. In Virginia Beach, conservative sellers marketed their homes with only a 1% increase in list price from last year, but saw a 3.26 increase in sales prices and a 3.6 month absorption rate. Interest rates defied predictions and stayed below 4% for most of the year.
Riding in on the strong economy is a new American President, espousing ideas that promote positive business growth. Stocks soared after the election to record highs. Based on the campaign platform, the technology, industrial, and transportation sectors should see healthy growth. Improvements to the sky-rocketing health insurance costs are expected with a modification to Affordable Health Care. And with a Republican-controlled Congress, the country should see the largest tax revolution since 1986, promoting tax cuts and government spending on infrastructure. The expectation for 2017 being continued wage increases and higher consumer spending. A reorganized Al Qaeda and the increase in ISIS attacks worldwide has not affected commerce, but it remains a Wild Card.
In the housing sector, interest rates are expected to edge upward to the 5% that was originally predicted in 2014. Historically, the increase of interest rates has not slowed sales until reaching 8%, however due to the extended period of rates below 4.5%, I do believe that we will see that tapering occur sooner, possibly at 6%. Due to low inventory and low absorption rates in Tidewater, prices will continue to increase. At a period when first-time buyers are half of the buyer pool, finding affordable housing will become more difficult. New construction will maintain a steady pace of additional housing starts, but not to be caught with too much inventory as they did in 2008-9. Therefore inventory is not expected to increase. It is my expectation that first-time buyers will be the most challenged sector of the housing market. Having an experienced and aggressive Realtor and a savvy loan officer are the prospective buyers best tools in this period of steady, strong growth.
This shortage of inventory will also result in rising rental rates. Home ownership will become a more economical and obtainable option for those currently renting. Loosening credit restrictions and a new lower down payment option on conventional loans will encourage more first-time “Millennial” buyers to enter the market. This group of young professionals recognizes that responsible home ownership is one of the best investments they can make in their lifetime and are ready to join the ranks of home-owners. In addition, single women will continue to be largest demographic of home-buyers. Condo sales, especially near urban areas (and our local beaches) will continue to improve due to the limited inventory of single-family detached homes that are affordable to many. In fact, new construction will be more concentrated on multi-family housing to target those more affordable price points.
The housing market is driven by economic fundamentals including supply and demand, interest rates, unemployment, incomes, foreclosures, and vacancy rates. All in our area have moved in a positive direction and sales have had their fifth consecutive year of conservative price increases. Consumer confidence in the economy is strong and more first-time buyers entering the market lead me to predict a balanced and healthy housing market continuing throughout 2017. I look forward to the year ahead, helping home buyers and sellers reach their goals!
Happy New Year!