The Case Shiller Home Prices Indices for February 2017 will be released on Tuesday morning. Last month’s report saw a 5.9 percent annual gain in the national index for the month of January, up from 5.7 percent in the previous month. Prices are at an all-time high since the housing bubble a decade ago and the March report shows no signs of a slowdown, especially in hot markets like Denver, Portland and Seattle. While housing demand remains stable, high prices and low inventory will cool down homebuyer activity in Spring.
”For this reason, we think the 2017 market will be a late bloomer, with new listings coming on later in the year and sales peaking in the early fall, instead of summer,” wrote Redfin chief economist Nela Richardson in an email.
Weather changes in February and March likely precipitated the fall of housing starts in March, which dropped 7 percent, falling from a 1.22 million seasonally adjusted annual rate. However, the National Association of Home Builders/Wells Fargo Housing Market Index, which measures builder confidence, polled its highest reading since June 2005. The warm weather boosted demand in construction at the beginning of 2017 and Trump’s friendly regulatory reforms has led analysts to forecast continued growth over the year.
Housing Inventory Remains Tight
The Census Bureau’s March report delivered good news for homebuyers navigating a tight market. Building permits rose 17 percent year-over-year, indicating new housing supply may be on its way. Despite the welcome boost, low inventory remains a major concern in the market for the coming year. Inventory rose 5.8 percent to 1.83 million existing homes available, but that number still remains 6.6 percent lower than a year ago, according to the National Association of Realtors.
A Seller’s Market
Dropping unemployment and slightly rising wages may have drove March’s existing home sales to a 10-year high. Home sales were up 4.4 percent from March to a seasonally adjusted annual rate of 5.71 million units from 5.47 million in February. This signals that home buyers are not deterred by rising housing prices and low supply. However, economists warn that every home buyer has a limit. “If home prices continue their upward trajectory, more buyers will find themselves priced out the market,” said Ralph McLaughlin, Trulia’s chief economist. “If prices continue to rise without wage increases, markets will eventually experience a slowdown in home sales.”
Competition Heats Up
Competition for homes is fierce, particularly in big tech hubs like Denver, Seattle, Portland and California’s Bay Area. More and more home buyers are paying more than the asking price in some areas, according to Redfin. The most competitive markets were San Jose, San Francisco, Oakland, Seattle and Tacoma.
Mortgage Rates Will Rise
Some experts see mortgage rates picking up and returning to historical averages. “Last year, we hit an all-time low on mortgage rates,” said Steve Hovland, director of research at Home Union. “We think that’s the floor on mortgage rates.”
Moreover, for the second time in three months, the Federal Reserve raised its benchmark rate by 0.25 percent to 1 percent in March. The Fed expects to quicken its pace on rate hikes ahead. While small increases to the federal funds rate has little effect on mortgage rates, bigger and faster paced hikes will.
Higher prices on homes and mortgages will make it more difficult for millennials and first time buyers to put money down for a new home, Hovland added.