There’s nothing certain in life but death and taxes, as the saying goes. Add a new truism for 2017; more demand than supply of homes in Seattle in the new year.
Following the Federal Reserve’s Dec. 14 increase of the short-term lending interest rate to a range of 0.5 to 0.75 percent, the central bank signaled there may be three more rate increases in 2017. “The era of ultra-low interest rates is over,” said Lawrence Yun, National Association of Realtors chief economist. “(The) short-term rate hike will be followed by several additional rounds of increases in 2017 and 2018.”
However, there is no need to panic over higher interest rates. Mortgage interest rates are not expected to rise dramatically. By the end of 2017, rates are forecast to be in the 4.5 percent to 5 percent range. This is low by historic standards. Still, with higher rates on the horizon, now is the time to make plans.
The group hit hardest by rising interest rates is first-time home buyers. A few will undoubtedly be knocked out of the search. Some may change their expectations about a future home with regard to size of home or location.
The obvious counterbalance to higher interest rates is rising incomes. The good news: Many experts are forecasting higher incomes in 2017, especially in tech-heavy cities like Seattle.
Housing inventory — or the lack thereof — was a dominant factor in 2016, and it will continue to be a factor in 2017. Inventory of homes is forecast to increase in 2017, although I’m doubtful the increase will be significant. Last year, Seattle stood among cities with the lowest real estate inventory and shortest time-on-market in the nation. I don’t foresee a significant change from 2016.
In Seattle’s hyper-local real estate market, I expect the demand for homes in popular neighborhoods will maintain upward pressure on prices in 2017, while the less-desirable neighborhoods may actually experience a softening of prices as the inventory of homes rises. “We’re seeing some clear patterns emerge within markets,” Realtor.com Chief Economist Jonathan Smoke said. “One might be slowing down and cooling off where another part is really heating up. Real estate is so local that I would argue that a neighborhood view is really where you can see the differences and disparities and changes that are occurring around the country.”
Zillow asked more than 100 experts to weigh in on the future of the real estate market. Among those surveyed, the consensus was that the real estate market would begin to shift from a seller’s market to a buyer’s market in 2018 or 2019. “In some markets, it’ll start to turn already in 2017, where demand isn’t quite so high and you get a little more inventory in and you have buyers better able to negotiate,” said Svenja Gudell, chief economist at Zillow.
Looking ahead, Gudell added, “The homeownership rate will grow, and they’ll be less white and a little younger. … Unfortunately, I think all of us will be spending more time in the car as more people have to look for more housing outside the city center as homes become much more expensive in the urban area,” she added.
More millennials are expected to enter the housing market in 2017. “The potential is there for the market to have the most first-time buyers — certainly on an absolute volume basis,” Smoke said. “The potential is there for an even bigger year than we’re forecasting.”
In the new year, Seattle tops the list for home price appreciation according to VeroForecast. Eric Fox, vice president of statistical and economic modeling forecasts appreciation at 11.2 percent for 2017. Although, if interest rates should rise beyond 5 percent, home sales are expected to decline by 4 percent, and this may impact appreciation in 2017.
My advice to buyers; don’t spend 2017 lying in wait for interest rates or home prices to fall. Instead, be proactive and plan to take advantage of the still-attractive low rates. Engage with a skilled Realtor and explore all your housing options. Widen your search, and you may discover a great neighborhood you hadn’t considered before.
To sellers I ask, aren’t you feeling fortunate after several years of record home price appreciation? In recent years, we’ve witnessed a new phenomenon in the housing market; sellers unwilling to budge.
“The median tenure in homes is at an all-time high,” Smoke said.
You see this trend reflected in remodeling data. But, don’t gamble on windfall appreciation and miss this amazing seller’s market. An old friend in the real estate industry used to say to me, “Pigs get fat, but hogs get slaughtered.” Home price appreciation is forecast to slow in 2017, but demand will remain high — arithmetic that adds up to sales.
While interest rates remain relatively low, and home price appreciation is slowing, there is good reason for both buyers and sellers to make a move in 2017.
Have a question about selling or buying your home? Ray Akers can be reached at firstname.lastname@example.org or 206-722-4444.