— namely San Francisco, San Jose, and some select Southern Californian cities — will likely not see impressive growth over 2017 due to affordability concerns. Rapid, unsustainable price growth over the last several years has pushed home prices far out of the affordable range for the majority of potential buyers in some areas, and growth rates are already teetering on the edge of going negative for the first time in 5 years. Any unfavorable market shocks such as additional interest rate hikes could disproportionately affect these areas, blocking even more potential homebuyers from entering the market and leading to a flat or even negative growth year.
for those who could barely qualify and afford a home prior to the rise. The first wave of this effect will be the fence sitters who couldn’t decide if they are ready to buy. Given that each 50 basis points will add over 20 percent to a monthly mortgage payment these people will want to act quickly to lock in a rate before rates climb higher. This may be a very large number of buyers and alone could make the spring season a feeding frenzy. Others who have been thinking about perhaps buying soon will take note of this frenzy and observe an acceleration of rising home prices. They will therefore have two motivators to reconsider their passive wait-and-see approach as they pay rent every month. Most people have not thought deeply about how inexpensive owning is compared to renting in many markets. In the top 10 metros, a 2,000 square foot apartment can cost nearly double that of owning a home. This was not enough of a
motivator when rates were low and kept getting lower for these people because renting amounted to a free option to jump in later with the same benefit. But as people see that waiting will eat into the owning advantage, they will quickly move through the stages of fence sitter, shopper and bidder. This will be the second phase of the frenzy. 3) What is your outlook for new home sales and prices in 2017 (up, flat, or negative)? Yun: New home sales will do well, rising possibly by 10 percent or more. Inventory shortage assures quick sales of newly constructed homes. Moreover, the more expensive new homes will benefit from the tax cut that is likely to be skewed towards the upper income and from the current wealth gains at the top from an all-time high stock market. New home prices are also expected to rise around 4 percent.
Becketti: Sales down. Prices up.
Weiss: However, in the first year of this shift, 2017, I expect that rising rates will have the opposite effect than many expect; rising rates will increase demand for homes across the spectrum except
ATTOM Data Solutions • P7
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