The majority of households believes now is a good time to buy a home but confidence has retreated by a considerable amount amongst renters, according to the latest survey from the National Association of Realtors.
Some 57% of renters said now is a good time to buy, down from 60% in September and 68% a year ago while 78% of home owners think it is, unchanged from September but down from 82% in December 2015.
According to Lawrence Yun, NAR chief economist, declining affordability in many parts of the country is behind the weakening morale and the decision by the Federal Reserve to increase interest rates this week and warn that more increases can be expected in 2017.
‘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,’ he explained.
‘Younger households, renters and those living in the costlier West region, where prices have soared in recent months, are the least optimistic about buying,’ he added.
However, even with the dip in buyer enthusiasm, existing sales are still expected to end 2016 some 3.3% higher than 2015 and reach around 5.42 million, the best year since 2006 when they reached 6.47 million.
In 2017, sales are forecast to grow roughly 2% to around 5.52 million and the national median existing home price is expected to rise to around 5% this year and 4% in 2017. By the end of next year, mortgage rates are expected to reach around 4.6% and the Federal Reserve is expected to raise the Fed funds rate a few more times to 1.25%.
‘Although the economy is expected to continue to expand with around two 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,’ said Yun.
Despite these headwinds, Yun is hopeful that the continued job growth, any economic stimulus from the new administration and more millennials reaching their prime buying years will keep demand for the most part on solid footing.
He pointed out that the key will ultimately come down to what the housing market desperately needs and that is more inventory. However, more expensive mortgage rates could also slow the pace of home owners listing their home for sale.
‘Some would-be sellers may be reluctant to move up or trade down, especially if they’ve refinanced in recent years. That’s why it’s extremely necessary for home builders to step-up their production of homes catered to buyers in the affordable price range. Otherwise the nation’s low home ownership rate will struggle to shift higher in 2017,’ he added.
Mirroring current conditions in most markets and unchanged from last quarter, nearly all of those surveyed, some 91%, believe that prices will stay the same or rise in their community in the next six months. Respondents living in suburban areas, renters and those from the West are most likely to believe prices will go up in their communities.
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