2016 Housing Market Review
As we approach 2017, we wanted to take a look back at the highs and lows of the housing market throughout 2016. We’ve already touched on whether it was more prudent to buy or refinance this past year, but now we can dive a little deeper into why. Plus, we’ll look ahead at 2017 to see what the housing forecast has in store.
In the first quarter of 2016, the housing market continued to strengthen while foreclosures declined. Construction starts on single-family homes were up 5 percent (totaling 791,000 units) from the final quarter of 2015, and up 23 percent from the same time a year prior. Purchases of new single-family homes totaled 532,000 in the year’s first quarter, up 5 percent from the previous quarter, and up 2 percent from the same time the year before.
The U.S. homeownership rate declined in the first quarter of 2016 after increasing for two consecutive quarters.
By May 2016, inventory of low-tier homes had fallen by 8.9 percent and middle-tier homes by 9.7 percent, compared to one year before. There was a real estate gridlock during the second quarter of the year, with homeowners selling, but fewer homes available to buy.
New construction slowed, with 1.138 million homes being constructed instead of the 1.5 million needed to balance the demand. And to make matters worse, most of the new homes built were for luxury consumers, not first-time buyers.
Mortgage rates were at near record lows, while the median home price rose 5.4 percent. Price growth slowed to about 4 percent at the top end of the market, but it rose to 8 percent on the lower end.
The third quarter of 2016 was even better for homeowners, but not so much for buyers. Twenty-four percent of the U.S. housing market was less affordable than it usually was during third-quarter averages, up from 22 percent the previous quarter.
Total construction starts in September declined 9 percent from the end of the second quarter, but single-family housing starts increased 8.1 percent.
According to a report by the U.S. Bureau of Labor Statistics, of the 414 counties they analyzed, 101 saw their median-priced homes less affordable than historic averages going back to 2005. Affordability improved in 153 counties compared to one year ago, but worsened for 261 other counties.
Although all the data isn’t in for the fourth quarter of 2016, we do know that home sales fell 1.9 percent in October to 563,000 units. The number of new homes on the market increased 2.9 percent to 246,000 units on a seasonally adjusted annual rate — its highest level since September 2009, but still less than half its pre-crisis peak.
Half of all buyers in 2016 were first-time buyers, with 61 percent under the age of 35. Half of all sellers during the same year were under 41.
Looking ahead to 2017, it’s projected that there will be nearly 1.3 million single-family and multi-family home construction starts, with 1.16 million closings. The Federal Housing Finance Agency (FHFA) also announced that loan limits for mortgages acquired by Fannie Mae and Freddie Mac will also increase in 2017, with a new limit of $424,100 on single-unit properties. In wealthier areas where home prices exceed the median baseline limit, the loan ceiling will be adjusted to $636,150 (up from $424,100). As a result of rising home values and increasing baseline loan limits, the loan maximum has been increased in all but 87 counties across the nation.
Mortgage rates should begin to gradually rise, too, though job growth could slow down to 2.8 million. Home values are expected to grow 3.6 percent, according to a new survey of 100 economic and housing experts. But new-home building costs could also rise. Cities will begin to focus on denser developments of smaller homes near urban centers in 2017, while the affordable suburbs will gain more popularity with many millennial and first-time buyers.
It’s also projected that the U.S. housing market will be under-supplied by 2.5 million homes by the end of 2017, with the potential for overvaluation. But, on a positive note, that lack of available new homes will boost remodeling and replacement activity by over 4 percent.