Enthusiasm among homebuyers has slipped in light of lacking affordability and steadily rising mortgage rates, a disposition expected to give way to a modest gain in existing-home sales in 2017, according to the National Association of REALTORS® (NAR) fourth quarter Housing Opportunities and Market Experience (HOME) survey. Though 78 percent of the homeowners surveyed believe now is a good time to buy a home, just 57 percent of renters agreed—a decline from 60 percent in September and 68 percent one year ago. Existing-home sales are expected to inch up 2 percent to 5.52 million next year, up from 2016’s expected 5.42 million.
“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,” says Lawrence Yun, NAR chief economist. “Making matters worse, the unwelcoming reality of higher mortgage rates since the election is likely further holding back confidence. Younger households, renters and those living in the costlier West region—where prices have soared in recent months—are the least optimistic about buying.”
The median existing-home price, according to NAR, is expected to grow 4 percent in 2017; of the homeowners surveyed, a wide 91 percent believe prices will stay the same or rise in their community over the next six months—a sentiment felt most among renters and residents in suburban areas or in the West. Mortgage rates, as well, per NAR, are expected to hit 4.6 percent.
Fifty-four percent of households surveyed believe the economy overall is improving, thanks to job growth and tempering unemployment—a significant boost from the 48 percent echoing the same feeling in the third quarter of this year. Fifty-four percent represents the highest share since the survey’s inception. A close percentage (59.8 percent) also believe their financial situation will improve in six months.
“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,” says Yun.
Sixty-two percent of the homeowners surveyed, to compare, believe now is a good time to sell a home, down from 63 percent in the third quarter of this year.
According to Yun, continued job growth, economic stimulus from the incoming administration and millennial home-buying activity will continue to bolster demand—supply, however, is struggling to keep up.
“Some would-be sellers may be reluctant to move up or trade down—especially if they’ve refinanced in recent years,” said Yun. “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.”