Why I'm Confident 2017 Will Be a Good Year for the Housing Market

Thanks Susan Keene with Legacy Texas Bank for the article!

Why I'm Confident 2017 Will Be a Good Year for the Housing Market

Here is a great article about the housing market in 2017. This is definitely worth reading!

 As we embark on a new year, there are many reasons to be optimistic about the mortgage and housing markets. Here are my top 9:

 Interest rates are still low: Yes, it’s true that the rise in mortgage rates has some people worried, but rates are still near their historic lows. While rates are likely to continue to rise in 2017, the increase is likely to be more moderate than we’ve seen over the last six months. That means we may see a drop in refinance volume, but the home purchase market is likely to remain robust. 

 Consumers are more confident. The University of Michigan reported its consumer sentiment index jumped nearly four points in early December to 98, well above forecasts. More importantly, its current conditions index, which measures consumers’ perceptions of their personal finances, rose almost five points to 112.1, its highest point since 2005, well before the housing meltdown. If people are optimistic, they’re more likely to feel confident enough to buy a house.

 More people are working: The current unemployment rate of 4.6% is at a nine-year low. More people are working. That’s certainly a big reason behind the jump in confidence. 

 Millennials will enter the housing market in a big way: Next year, more than half of all homes will be bought by first-time home buyers, according to a survey of buyers by realtor.com?. That’s a sharp contrast with 2016, when only 33% of people planning to buy a home were first-time buyers. And in 2017, 61% of those first-time buyers will be under age 35, according to the realtor.com survey. 

 Home prices are likely to moderate: Home prices have risen strongly the past four years and have now recouped everything they lost since the housing crisis, not accounting for inflation, according to the S&P CoreLogic Case-Shiller home price indexes. The rebound in home prices has priced many prospective homebuyers--especially the critical first-time homebuyer group--out of the market. One of the reasons for the surge has been a relative lack of homes for sale, creating a supply-and-demand imbalance. However, there are signs that may be improving.

 A greater supply of homes is on the horizon: New home construction is running about 25% below historical averages. But the volume of home construction loans grew at the fastest rate in more than two years in the third quarter, indicating that banks are starting to ease up on credit. If that trend continues, more new homes will be coming onto the market, easing the supply strain.

 We have a new president. As a real estate developer, President-elect Trump should be sympathetic to the housing industry. There will likely be some roll-back of some of the Dodd-Frank provisions that have stifled lending. With strong Republican majorities in both houses of Congress, the industry can expect meaningful change fairly soon.

 There will be a “mortgage guy” at Treasury: Treasury Secretary-designate Steven Mnuchin knows mortgages. Mnuchin, you may remember, bought the failing IndyMac during the financial crisis, renamed it OneWest, turned it around, and then sold it to CIT Group in 2015 at a huge profit. He’s likely to favor policies that will make getting a mortgage a little easier than it has been, even in a higher rate environment. While none of us wants to return to the problems associated with subprime loans seen during the crisis, making mortgage credit more widely available should further lift the housing market. 

 Fannie Mae and Freddie Mac may be privatized: Mnuchin’s comments about privatizing Fannie and Freddie are a good sign. As the New York Times’ mortgage columnist Gretchen Morgenson wrote recently, “This is good news indeed for small lenders who rely so heavily on Fannie and Freddie to buy the mortgages they underwrite. And when small lenders benefit, borrowers do, too, by having more choices.” A revitalized secondary market will also provide billions more in mortgage credit at a reasonable price.