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Troy McMullen, FORBES CONTRIBUTOR
About this time last year, some of the smartest minds in real estate predicted 2016 to be another robust year for many U.S. markets. There was reason to be optimistic. Tight supply in many areas pushed prices up 4% nationally in 2015, following a 6.4% hike in 2014, according to Clear Capital, a provider of real estate data and analysis.
But depending on where you live, 2016 endured an uneven year. While prices are set to see modest gains again this year, some important real estate markets showed signs of slowing.
Miami saw home prices rise 10.1% in 2015, but prices have been falling much of the year and most observers doubt that market will see double-digit gains in 2017. The same could be said for San Francisco, Seattle and Denver – three western markets that saw sharp increases the past three years but are all poised to come back down to earth.
Even in New York City, where property prices had ranked among the highest in 2015 and 2016, a glut of new housing at the high end is leading some to predict a severe slowdown in the country’s biggest housing market next year.
Meantime, many experts expect the seven-year run of historically low mortgage rates that encouraged home buying to come to an end in 2017, as mortage rates begin to creep back up. Mortgage rates have jumped by roughly half-a-percentage point since late October, reflecting expectations that President-elect Trump's pro-growth policies will drive up interest rates.
The Federal Reserve hiked rates at the close of its two-day meeting on Wednesday, bumping up its benchmark interest rate by 25 basis points to between 0.50% and 0.75%. The Fed also guided toward three rate hikes in 2017.
So what can we expect in 2017? A year of slowing, yet moderate growth, say many real estate economists. Below, a sampling from some property experts.
Nela Richardson, Redfin Chief Economist
‘Strong buyer interest, better access to credit, and a modest increase in inventory will allow home sales to grow, but not as much as in 2016. Price growth will hold steady. Homes will sell even faster next year, breaking this year’s record as the fastest real estate market. Although growth in new construction may be hindered by new immigration policies, we still expect to see more homes built in second-tier cities and more Millennial homebuyers moving from the coasts to smaller and inland markets where they can find an affordable starter home that meets their aesthetic requirements.’
Dan Kodsi, CEO of Royal Palm Companies and developer of Paramount Miami Worldcenter
'We survived cancer…this time we just have to get through the flu. The mixture of too much inventory combined with a global financial meltdown led the Miami market into tailspin shedding billions in value. The silver lining was what some thought would take over 10 years to recover, but it took less than 5. This time around the market built less than half the inventory, took large deposits and only built project with high percentage presales. This has forced a lot of capital to be invested making it less likely of a mass selloff. My prediction for 2017… expect to see some price depreciation in certain submarkets and in some buildings where there is a saturation of similar units.'
Gabby Warshawer, Director of Research, CityRealty.com
‘Despite consistent record-breaking growth over the last several years, we’re forecasting that average prices in the New York market will remain unchanged in 2017. The average price of a Manhattan apartment in 2016 was a record $2.2 million—the first time the average has been above $2 million—and we don’t think prices will climb higher in 2017.’
‘A large part of the reason we’re not forecasting continued price growth is because there won’t be any big buildings in 2017 with the volume of extremely expensive closings we saw at 432 Park Avenue in 2016, one of the so-called Billionaire’s Row towers, where the average sales price was $20 million and where there were 75 closings. Other extremely expensive towers are being built, but they won’t have sales recorded this year.’
Jonathan Smoke, Chief Economist for Realtor.com
‘We don't expect the outcome of the election to have a direct impact on the health of the housing market or economy as we close out 2016. However, the 40 basis points increase in rates in the days following the election has caused us to increase our interest rate prediction for next year." "With more than 95 percent of first-time home buyers dependent on financing their home purchase, and a majority of first-time buyers reporting one or more financial challenges, the uptick we've already seen may price some first-timers out of the market.’
The 2017 housing market will be a year of slowing, yet moderate growth, set against the backdrop of a changing composition of home buyers and a post-election interest rate jump that could potentially price some first-timers out of the market, according to Realtor.com housing forecast.’
Ron Peltier, Chairman & CEO of HomeServices of America
‘The housing market has recovered in virtually all sectors, and I believe we will see a continuation of this in 2017. It will not be a ‘boom,’ but it will be a solid market…one driven by first-time homebuyers. Historically, that is a segment of the population that makes up roughly 40% of the business – so if the first-time buyer sector is doing well, there is a trickle-up effect on the rest of the market.’
Lawrence Yun, NAR Chief Economist
‘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. 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. 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.’
Gil Dezer, president of Miami and New York-based Dezer Development.
'There has always been (and might always be) the naysayers who say we're overbuilding. The Miami real estate market since 2011 has transformed unlike any other market in the U.S. Buyer are leaving heavy deposits, in most cases 50% of the purchase price, and developers are not starting construction unless they have a critical amount of units sold. So with heavy deposits and huge pre sales, I think the biggest misconception today is that there will be an oversupply of apartments in the market. '
Garrett Frakes, Managing Partner of Polaris Pacific, a West Coast real estate sales and marketing firm specializing in new development
'A return to localization will continue to be critical in 2017. We need to stop thinking of real estate as a national industry with a one-size fits all approach. If the New York market is down for example, then the entire country isn’t necessarily down. Each market must be looked at and analyzed for what it is rather than viewed as a whole.'