2017 is the dawn of a new era in US Real Estate. Short term interest rates are on the rise, our new president has made bold statements despite his lack of government experience and a shift in buyer demographics will continue to change the residential real estate market. “If you have considered a wait-and-see approach to buying your first home or moving up or down as your housing needs may have changed and here are some ideas to consider as you question the timing of this important decision.” said Todd Flavio, mortgage expert.

Mortgage rates and the future of housing

Not necessarily. Our economy has been in a low inflation environment going back to the Clinton administration. That means our economic leadership has been better at managing and balancing growth and inflation. Despite the Federal Reserve raising short-term rates last year moving mortgage rates slightly higher with guidance of 3 to 4 more potential rate hikes in 2017, most experts expect only 1 or 2 more hikes this year. Inflation metric also indicate only a minor possibility that these rate hikes will significantly move interest rates. Fannie Mae, Freddie Max, National Association of Realtors and Mortgage Banks Association have a consensus estimate of 4.43% for a 30-year fixed mortgage at the end of this year which is only slightly higher than current interest rates. Freddie Mac also noted the average 30-year fixed rate in 2016 was the lowest since 1971.

We are headed for another housing bubble and waiting may be a good strategy

Looking at both the emotions and data of our economy tells a different story. All consumer confidence reports show Americans are now the most optimistic since almost 2000. Overall, most Americans feel comfortable with their jobs and finances. Unemployment is under 5% which is an important number that most economists indicate cannot go lower for the largest economy in the world. Trump has suggested a wide range of threats, ideas and delusions but maintained that creation of additional jobs for building infrastructure and discouraged US companies from moving overseas have a high priority since he began his campaign. “Currently, there are 1.6M homes of inventory for sale – that is the lowest number since 1999” – Barry Habib. Low inventory indicates there are fewer homes for homebuyers to consider which creates more competition – the most recent housing bubble created the opposite effect with high levels of inventory with very few willing and able buyers also leading to depressed homes values.

The astronomical levels of home prices in some markets make it impossible to ever own a home

Yes, home price appreciation has increased however comparing home sale prices and affordability indicate a contrary opinion. The housing affordability index measures the affordability of a typical family and the ability to qualify for a typical mortgage – in short, the higher the number, the easier for a family to qualify for a mortgage. Although this index has decreased over the past 8 years, today’s 153 index is significantly higher than in 1990 when it was 108 and did not reach 153 until 2009.

Appreciation is predicted to remain at a minimum pace of 3% annually in the US through 2021 – this means there will be more buyers than sellers over the next 5 years. A group of over the top 100 economists, real estate experts and market strategists predict total appreciation of over 21% by 2021.

Another key indicator of affordability is the average monthly mortgage payment. This metric is simply the average payment for a median priced home in the US – this number considers many factors including household income, home values and interest rates. In 2015, this payment was $858 – but this was significantly lower than 1990 when it was $1245. Sure, this number has decreased over the past 8 years but still very low on a historical level. Another key indicator of demand is household formation – this is an increase of a household by an existing household. The projected number over the next 10 years will be the highest in any 10-year period, eclipsing the 1970s. Do not forget that the National Association of Realtors predict that 2017 will has the highest number of home sales since the early 2000s. Millennials are expected to account for 50% of home purchases.

Consumers should prepare themselves for the market

Real estate is the highest wealth building vehicle in the US – any family wealth building plan should include a balanced understanding of financials and emotions. Emotions drive decisions to find the home with best school district, the best floor plan, the best yard and perfect condition. Financials are based on market conditions, earning growth/stability as well as minimize future economic uncertainty. Rarely do these two drivers work in tandem – if they did everyone would have completed their move in 2008 when home prices significantly decreased due to the real estate crash.

Every home buyer should diligently research, interview and meet with potential Lending and Real Estate professionals. Trust, comfort, expertise and professionalism should be the emotionally drivers in the selection. Cost can also be an important however balancing the emotional side with the financial side of a mortgage. Sharing all information, impressions and a mutually agreed upon plan is essential for establishing trust.

“Proactively addressing any concerns with your team, they will eventual lead to building trust or indicate that it may not be the best fit. Patience is also important. The average buyer spends over 4 months to look for a home so be patient but be intentional. Waiting will only diminish affordability and decrease your purchasing power. Understanding your options, aligning your team and developing a plan will help you to take advantage of this golden opportunity of home ownership while minimizing stress, disappointment, and uncertainty.”  said Todd Flavio.