After a relatively calm real estate market in 2016, we can expect some changes to come in 2017, but it is unlikely there will be any tumultuous upheaval in the next year. We have seen inventory come back at a steady pace, and buyer demand is strong enough that it will continue to keep the market moving.
When we closed out 2016, the biggest news was the increase in mortgage rates. The rate rise is sudden relative to the slow pace of any changes over the past several years. We saw this occur immediately after the election results, with continued increases the week following. So far mortgage rates have gone up about 40 basis points, and now that the Federal Reserve has announced its increase to interest rates, we can expect that mortgage rates will continue to rise. The current rates already anticipated a Fed increase.
Here are some specifics of what we can expect in 2017: I would expect rates to keep rising in 2017 if the economy continues to improve and inflationary pressures increase. We should expect the early part of 2017 to be filled with a brisk pace of not only homes going under contract more quickly, but also taking less time to reach a settlement date so buyers aren’t subject to their rates expiring before they close on a home. For 2016, the median number of days on market (the amount of time it took for a property to sell) ranged from 44 in the winter to 14 during the peak summer months, but we have seen this drop to as low as nine days during the years when there was little supply to choose from.
While it is possible that the days on market could return to that low level in 2017, it is unlikely given the recent trend of an increase in new listings. Sellers have finally regained enough equity in their homes to feel comfortable putting them on the market. Also, because more-expensive mortgages make the overall cost of buying a home increase, we may see price appreciation slow down or, if rates rise considerably, prices could tick downward.
Often when the threat of more-expensive mortgages looms, many homeowners who are thinking they will sell in the next few years consider putting their property on the market sooner rather than later because they don’t want to run the risk of having to sell their home for less than they could get for it now. Thus, early 2017 should see higher activity than usual, but it is unlikely that inventory will be so low that there won’t be enough to carry us through the rest of the year.
Even though rates are on the increase, credit is not as hard to come by as it was just after the recession, and the Federal Housing Finance Agency has announced it will increase lending limits for 2017. The increase of the conforming loan limits is the first time these have changed since 2006. Previously, anything over $417,000 was considered a jumbo loan for our market, but starting in 2017, the limit will rise to $424,100.
Federal Housing Administration loan limits are also expected to increase slightly, from $271,050 to $275,665. Both of these increases reflect rising confidence in consumer ability to repay larger loan amounts and will provide buyers with more options when it comes time to choose a home. It is important to note that lenders have not become less stringent in their requirements. This loan amount threshold only records the inflationary pressure that the housing market has seen.
Lenders are bringing a number of new mortgage programs to the table that call for a modest down payment and don’t require the buyers to purchase an FHA loan. Typically, lenders require credit scores of at least 620, often over 650, to qualify. We’re also seeing more products from municipal housing agencies that assist many first-time home buyers. This is in addition to the Fannie Mae and Freddie Mac programs that allow for as little as a 3 percent down payment for first-time home buyers with loan amounts below the conforming threshold. The good news for financing is rates can change daily and there are lots of programs out there for buyers.