2016 was a good year for real estate. In fact, a recent National Association for Realtors report showed that it was the best year in a decade for existing home sales, with 5.45 million homes sold—not including new construction.
With strong numbers through the end of the year and into January, real estate professionals were hopeful going into 2017. But what can we realistically expect this year?
As we wrap up the first quarter, where are we? What are the challenges lie ahead of us? Are the prospects still as favorable as they were back at the beginning of the year?
Let’s break down what such a stellar previous year means, and what we can look forward to as we head further into the year.
2017 Real Estate Market Outlook — Updated
Improved buyer confidence increased home sales.
Three things have increased buyer confidence in real estate: wage increases, increased hiring, and growth in the stock market. Together, people have started to feel more confident about buying homes. This is especially trust in markets that are experiencing healthy local economies—we can look to emerging markets like Portland and Reno as well as Dallas and Houston to see that. A healthy local economy brings in consumer confidence.
It also means new construction, increased demand, and buying!
That said, there is a disparity in that the places with the most wage growth have the most unaffordable housing...a problem that has not yet seen a solution. Affordability is still an issue, especially in primary markets. In 2016, buyer confidence helped moved the market. This year so far, things have cooled a bit.
Rental income is stronger than ever.
One would think that with buyer confidence on the upswing and a strong homebuying year under our belts, renting would be weaker. Trust us — it’s not. Rental income and investing in real estate is absolutely king. Rental prices are at an all-time high nationwide due to sheer demand.
Whether it’s millennials who are trying to save, housing affordability problems, or simply a lifestyle preference, renting is a popular way to live. Perhaps now more than ever. Investors have a place in today’s market, and it’s never been more evident than now.
Keep an eye on political policy.
In 2016, real estate experts were waiting to see how the presidential election would pan out in order to gauge how it would affect the market. Now we know—and instead of election uncertainty, we have policy uncertainty. General consensus is that Trump’s promises and proposed policies will either have a positive effect or no effect on real estate, but it’s worth keeping an eye on things.
The administration is new, and things could still shake up. Mortgage rates and credit limits especially are something to keep on your radar.
Mid-sized cities continue to grow.
As we mentioned, there are emerging secondary and tertiary real estate markets that are reaping the benefits of their strong local economies. Because primary markets are growing increasingly unaffordable and struggling to have their supply meet demand (which drives their prices up in the first place), many people, particularly millennials, are flocking to mid-sized cities instead.
Raleigh, N.C., for example. While cities like this one may not offer the same job pool as San Francisco, is does have housing affordability. That makes it and other markets like it attractive not just for buyers, but for investors as well.
Overall, the outlook on the market into 2017 is optimistic. While not as heated as 2016, professionals largely feel good about where things are headed. Some red flags are definitely the affordability of some of the larger markets that are overheating. The affordability crisis in Los Angeles and other large metros may come to an unsustainable boil in the near future.
For real estate investors, it would be wise to look for investment opportunities where there is steady and stable growth. Even in markets where this is steep competition, like Dallas and Houston, you can still find opportunities to invest!