The California Association of Realtors has released their 2017 Housing Market Forecast. Why is that important? Well, if you plan to sell your current home to buy that forever home, to downsize, or even get into the market for your first home, knowing what the housing market is forecast to do over the next year is important. Instead of having you read the whole forecast, I went through the informative 133 pages and broke it down into factors affecting the forecast, what that forecast means for us locally and what the experts are saying.

Why is the Housing Forcast Important to Understand?

Important Factors Affecting the Forecast

Now, the first big news is that the Sacramento area is still 15.7% under the peak median home price of $394,450 in August of ’05 at today’s median price of $332,580. Secondly, rates remain attractive. A 30-year fixed is still in the low to mid 3’s. The economic outlook is good despite some uncertainty such as:

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  • the effect of Brexit
  • the Presidential election
  • the weak global production and exports
  • and the unexpected decline in oil

Here are a few more important takeaways:

  • California jobs are back, losing 1.3M during the recession but gaining 2.2M since January ‘08
  • Unemployment rates at an 8 year low of 5.5%
  • Consumer spending has been robust in 2016
  • Consumer confidence at a 9-year high

So, where is the inventory? Supply is remaining tight, or at least below the norm. Statewide we are at 3.4 months, and 2.9 months locally. Also, long-time homeowners are not moving, staying an average of 10 years, up from 5 years in 2009 citing the main reasons:

  • Low rate on current mortgage
  • Low property taxes
  • Capital gains hit
  • Where can I afford to go?
  • Could not qualify for a mortgage today

The last little statistic I thought was notable is, when asked what super power would you like to have…

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  • the #1 answer at 29% was to make traffic disappear,
  • #2 at 26% was the ability to fly,
  • but the third top answer at 21% was to have Instant Mortgage Approval!

That’s a great sign that consumers are seeing the value in homeownership.

Demographics at Play in the Housing Market

First, 64% of the baby boomers say they do not plan to sell their home when they retire, yet, 92% have equity in their home. This makes a huge difference in the inventory level, as they contribute inventory when they sell and buy. So why are they not moving?

  • 44% say Their $1M+ in equity isn’t enough to retire in style.
  • 13% say They plan to be buried in the back yard and leave their home to their kids
  • 2% say They want to see all their children living under the same roof again.
  • 41% say All the above!

Maybe if they knew about props 60 and 90, they’d take the plunge! So, let’s check in with the Millennials now

  • When asked how important is the American Dream: 90% of Millennials say it is Moderately to Very Important to them.
  • When asked what part of the American Dream is most important:
    • 18% said owning a home
    • 18% cited a fulfilling job
    • 16% thought a family is most important
    • 14% put education as number 1 and so on.
  • When asked if they thought buying a home was a good investment, 82% agreed.
  • When asked if they knew they could qualify for a mortgage with a lower down payment would they purchase a home:
    • 69% said they would start looking today
    • Only 19% knew about the FHA program, meaning 81% are unaware they can put down as little as 3.5%!

The last demographic I found compelling was Renters. Nearly half of the renters’ plan to purchase a home within the next 5 years. 55% of them have already prepared to buy a home by either speaking to a realtor, searched for homes, gotten preapproved, etc.

These demographics are positioned to impact the market in 2017. Baby boomers are staying put, which can keep the inventory low, millennials will jump in as they learn about their options, and renters are tired of paying higher and higher rents.

What the Experts are Telling Us

Nationally:

  • The GDP will increase 2.1%, compared to 1.5% in 2016
  • Unemployment should drop to 4.7%
  • The Consumer Price Index should increase 2.1%, compared to the 1.4% for 2016
  • The 30 Year Fixed Rate may increase to the 4% range

In California, unemployment should drop to 5.3%, with a 1% population growth, and real disposable income is expected to increase from 2.9% in 2016 to 3.5% in 2017. Now, 62% of the expert economics say that the housing market will increase in volume and price in 2017.

  • Volume in sales will increase 1.4%
  • Median home price will increase slightly at 4/3%
  • Affordability statewide will decrease to 29%
  • And the 30 Year Fixed Rate will go up to 4%

The lack of affordability will be our biggest challenge. Although locally, we are positioned well with affordability around 47%. The low affordability in the coastal regions should drive more homebuyers inland. So, the 2017 Forecast is positive for our area as volume is expected to increase and values up slightly.

Your 2017 opportunities are to:

  • Educate first-time home buyers – talk to their parents
  • Become well versed on down payment assistance programs, debt management and improving credit to turn renters into buyers.
  • Don’t give up on international buyers

The big message in this forecast is to stay involved & stay current as the housing market should be better in 2017 than it was in 2016.

The bottom line is that 2017 promises to be a great housing market environment. Sellers will continue to have a slight advantage with fewer than the normal number of homes on the market. Buyers can take advantage of the continuing low rates, as well as the low down payment options such as the FHA program. And as rents continue to rise faster than home values, there isn’t any reason to delay buying your own home.