04 Jan Six Housing Market Predictions For 2017
If economic indicators are any guide, Orange County’s housing market is heading for a fifth straight year of rising home prices, increased sales, more rent hikes and booming home construction.
But this year’s housing indicators don’t take one major wild card into account: President-elect Donald Trump.
“The issue here isn’t the trends. The trends are positive,” said Christopher Thornberg, a former UCLA professor and founding partner of Beacon Economics. “On the other hand, you’ve got this new administration coming in, and we’re not sure (what policies) they’re going to pursue.”
Tax cuts and increased infrastructure spending would stimulate economic growth, Thornberg said. That’s good for housing.
But a trade war with China and an ideological confrontation with California “could really hurt our economy, and all bets are off,” he said.
“The fundamentals are there for another year of rising prices, another year of rising rents. But that could be tipped over by Trump and company.”
With that in mind, here are six predictions for 2017.
1. Home Prices Rising
Highlight: Orange County home prices are projected to rise 2 percent to 6 percent this year.
Home prices in the county have been rising steadily since the housing market turned around in the spring of 2012. According to CoreLogic, prices have been up year over year for 54 straight months, rising $216,000, or 50 percent, from May 2012 to this past May.
The median price for all homes combined – or the price at the midpoint of all sales – shattered the all-time high in May and June this year, driven mainly by record prices for new homes. If the forecasts are accurate, the median for existing homes also will set new records this year.
The reason: Continued improvement in the employment market, solid income gains and more people moving into homes of their own, said Anil Puri, director of CSUF’s Woods Center for Economic Analysis and Forecasting. Competition for a limited number of homes also is pushing prices higher. “Those are big drivers in the housing market,” Puri said.
2. More Home Sales
Highlight: Southern California home sales will increase slightly from last year.
A total of 31,641 Orange County homes changed hands through October, CoreLogic figures show. That’s up 2.3 percent from 2015 to the highest level since the recession but still is 10 percent below the average for the past 29 years.
The reason: Again, more jobs, higher incomes and more people looking for housing.
“Sales are going to start showing a greater rate of increase (in 2017),” said Raymond Sfeir, director of Chapman’s Anderson Center for Economic Research.
3. Builders Busier
Highlight: Construction will increase in Orange County for a seventh straight year, increasing by 3 percent to 13 percent.
Chapman predicts builders will pull permits for 11,602 new housing units this year, up from an estimated 11,262 last year. CSUF predicts developers will build 14,000 units.
Chapman and CSUF also predict that construction jobs will increase 3.5 percent to 6 percent, rising to at least 106,000 workers.
“Things are looking positive for the construction market,” Puri said.
4. Mortgage Rates Up
Highlight: Interest rates for a fixed, 30-year mortgage will be 1 percentage point or more above the 2016 average of 3.6 percent.
California Realtors forecast in October that mortgage rates would be around 4 percent throughout 2017 but now are revising that estimate, said Jordan Levine, a Realtor economist. He predicts rates could be in the 4.5 percent range this year and possibly as high as 5 percent. Other forecasters had the same prediction.
Higher rates translate into higher homebuying costs.
For example, if rates hit 4.5 percent, monthly mortgage payments for a median-price home will go up about $300 – an increase of nearly $4,000 annually, Thomas calculated.
If rates hit 5 percent, monthly mortgage payments will rise close to $6,000 annually.
Most economists said higher rates will dampen but not halt this year’s expected increase in home prices and sales.
“There’s a lot of pent-up demand,” Sfeir said.
5. Affordability Down
Highlight: By year end, Orange County’s median family income will pay only 60 percent of the amount needed to buy a median-priced home, Chapman reported.
Chapman also predicts that median home prices this year will be 8.6 times the median income, compared with 6.1 times the median price statewide.
“Housing affordability in the county hasn’t been that low since the beginning of the Great Recession,” the Chapman forecast said. “The only affordable way for many lower-income families to find housing in the county is through rental housing.”
6. Smaller Rent Hikes
Highlight: Asking rents for an Orange County apartment will increase 2.7 percent to 4 percent this year.
Apartment trackers reported that 2016 rent hikes ranged from 3 percent to 5 percent.
Rents here have been rising steadily for 6½ years, up 20 percent since 2010, according to Reis Inc.
Orange County had the eighth-highest apartment rent among 79 large U.S. metro areas in the third quarter of 2016.
If the forecasts are accurate, the county’s average asking rent will range from $1,826 to $1,849 a month.
The question is how long can landlords continue to push up rents.
“I guess as long as tenants keep paying,” he said.