Looking Ahead to 2017

The year 2016 was an eventful one for home building. Falling unemployment, rising wages, and still-low mortgage interest rates created more opportunities for homebuyers than we’ve seen in some time. Data available in December had new-home sales leaping nearly 18 percent year-over-year in October. Sales of existing homes have risen, as well, reaching numbers not seen since 2007. These statistics led Fortune magazine to assert that the housing recovery “looks like it has finally begun in earnest.” (Image: tookapic via Pexels).

Sounds good—but what does that mean for the year ahead?

I gathered the 2017 forecasts from the usual suspects (Bloomberg, CoreLogic, Fannie and Freddie, NAHB and NAR, Zillow, and others, depending on the metric) and came up with these projections:

• Average annual new-home sales (single-family): 632,000

• Average total starts (single-family and multifamily): 1,254,000

• Average home price increase: 4.1 percent

Based on data available in mid-December, single-family sales for 2016 will come in at around 565,000 and total starts will end up somewhere between 1 and 1.1 million.

So it looks as if we are on track to continue to see the slow and steady increases of the past few years. Which, honestly, to my way of thinking, will stand the overall industry in good stead going forward. As painful as land and labor shortages have been for builders, they have kept some parts of the market from moving into bubble territory.

As usual, there will be bumps in the road. Mortgage rates will almost certainly keep going up, but most forecasters are predicting they will remain in the low-to-mid 4 percent range. There seems to be another assault on the mortgage interest deduction brewing, but other changes to the tax code may dull the effect that the loss of the MID might otherwise have.

New-home inventory will undoubtedly remain tight. Lack of inventory was a big factor in the more than 6 percent increase in home prices last year, but it looks as if price jumps might slow in 2017. Recent price increases have added more than $11,000 in home equity to the average homeowner’s wealth, though, and may possibly lead more of them to trade up to bigger or more expensive homes.

2017 may also be the year the dam starts to break on Millennial homebuying. Rents are leveling off—they are predicted to grow less than 2 percent this year—but high rental costs will still be a big reason to buy. And, according to the Mortgage Credit Availability Index from the Mortgage Bankers Association, it’s easier to get a mortgage now than it has been at any time during the last eight years.

In fact, a number of big builders are betting on Millennials moving out of their parents’ homes and their apartments and becoming buyers. Since D.R. Horton first started catering to entry-level buyers with its Express brand, Taylor Morrison and Meritage have jumped into the fray with smaller and less-expensive choices. Meritage’s Live.Now. Homes will range from 1,800 to 2,500 square feet, with prices starting in the low $200s.

Even luxury home builder Toll Brothers thinks the demographics are finally shifting toward the younger homebuyer. The company has been providing options for Millennials for some time with urban condos and rental apartments. Its new line of homes, T|Select, will offer lower prices, fewer options, and faster delivery times in an effort to attract young families.

As always, unforeseen events in the coming year could render all of these projections moot. But there is one thing I can guarantee about 2017: It will be interesting.