Existing home sales will show only a small gain in 2017 due to increasing mortgage rates and shrinking consumer confidence, according to the National Association of Realtors.
This prediction is a huge departure from the 2017 home sales projection release by real estate agent provider, Redfin.
NAR conducted its fourth quarter Housing Opportunities and Market Experience survey, which asked consumers about their confidence in the economy and their housing expectations in 2017.
While the majority still said now is a good time to buy a home, confidence retreated significantly among renters, 57% of whom said now is a good time to buy a home. This is down from 60% in in the third quarter and 68% last year.
Among homeowners, on the other hand, 78% say now is a good time to buy. This is unchanged from the third quarter but down from last year’s 82%.
“Rents and home prices outpacing incomes and scant supply in the affordable price range has been a prominent headwind for many prospective buyers this year,” NAR Chief Economist Lawrence Yun said.
“Making matters worse, the unwelcoming reality of higher mortgage rates since the election is likely further holding back confidence,” Yun said. “Younger households, renters and those living in the costlier West region – where prices have soared in recent months – are the least optimistic about buying.”
NAR predicts existing home sales will close out 2016 with an annual increase of 3.3% and reach about 5.42 million, the best year since 2006.
Headed into 2017, existing home sales will still increase, but slightly less at 2% to around 5.52 million. Home prices will continue to rise, increasing 5% this year and 4% in 2017, according to NAR’s predictions.
NAR predicts the end of next year will bring interest rates of 4.6% and the Federal Reserve will raise rates several times to reach 1.25%.
“Although the economy is expected to continue to expand with around 2 million net new job creations, existing home sales are expected to see little expansion next year because of affordability tensions from rising mortgage rates and prices continuing to outpace income growth,” Yun said.
The key to housing next year, according to Yun, will be new inventory.
“Some would-be sellers may be reluctant to move up or trade down – especially if they’ve refinanced in recent years,” Yun said. “That’s why it’s extremely necessary for homebuilders to step-up their production of homes catered to buyers in the affordable price range. Otherwise the nation’s low homeownership rate will struggle to shift higher in 2017.”
First American Chief Economist Mark Fleming agreed that new construction will be vital in 2017.
“The need for new housing to be more affordable I think will be more important than it’s been in a long, long time,” Fleming said in an interview with HousingWire.