GUEST VIEWPOINT: New President, New Congress Will Likely Create New Challenges and Opportunities in Real Estate
John Kope | January 2017
We know that 2017 will be a time of change with a new President, a new Congress, and new members of the Cabinet. As Realtors, we will all need to be watchful of changes affecting homeownership, specifically: mortgage rates, closing costs, rising inflation, job and income gains, housing supply, income-tax reform that might eliminate some tax deductions, as well as other issues that could impact our industry.
Some of our new president’s proposed policies could possibly energize home sales and starts, while others might tend to constrain the market. Existing home sales are projected to increase 2% to a post-recession high of about 5.5 million in 2017, according to Lawrence Yun, chief economist of The National Association of Realtors. However, he says that’s less than 2016’s 3.3% gain and below the 5.75 million sales that are considered normal.
A stumbling block to continued strong sales is the rise in mortgage rates. Since late October, the average 30-year rate has climbed from 3.4% to 4.32%, boosting the monthly payment on a $200,000 mortgage by $97.00 a month. Yun estimates the rate will increase to about 4.6% by the end of 2017, adding another $34.00 to that monthly mortgage payment.
Yun continues to say that some low- and moderate-income buyers will no longer qualify for a loan. “People at the margins (will be) priced out,” he says. He estimates the increase in rates over the next year will mean 400,000 fewer home sales.
On the positive side of the economic ledger, the economy continues to benefit from steady job and pay gains that should result in an overall pick-up in home sales. Many economists expect current average annual earnings growth of 2.5% to approach 3% by year’s end, and a 4% unemployment rate will force employers to bid up for workers.
Another positive is that the number of homeowners who are “seriously underwater” fell to 10.8% in the third quarter from 29% in 2012, according to ATTOM Data Solutions and Realty Trac.
Homebuilders are also expected to respond to tight supplies by building more houses; a 10% increase from 1.18 million in 2016 to about 1.3 million in 2017, according to a survey of 53 economists by Blue Chip Economic Indicators.
While it remains to be seen what policies President Donald Trump and Congress will implement, his proposed tax cuts could put more money in buyers pockets, and his proposal to lift some financial regulations could make it easier for some consumers to obtain mortgages. So, lets be hopeful for a Happy New Year!