2016 in the Rearview and 2017 in the Headlights



The latter part of 2016 saw the Federal Reserve slightly raise interest rates that brought 30 year mortgage rates up to slightly above 4.3 percent following 9 weeks of consecutive increases (source: Freddie Mac). 2016 began the year with the same mortgages averaging 3.87 percent. This might seem like a modest increase over the year but the combination of the Federal Reserve further increasing rates in 2017, home prices exceeding the financial capability of most potential buyers, and continuing tight lending standards has the possibility of slowing the residential market in 2017.

However, with a maverick real estate mogul taking the reins of the White House next month, there are other aspects to be considered…

In the Rear Mirror

Improvements in the general economy, lower unemployment ,wage growth, low interest rates, lower gas prices, more private money entering the market, millennials getting off the fence to begin entering the market, among other factors helped create a robust residential market in 2016.

2016 and recent years have seen new home construction costing much more than existing homes resulting in limited growth. Homebuilders say this is due to all the extra cost of regulation and not necessarily from higher input costs of lumber, cement, and worker wages. With a new president determined to reduce government regulations, this could change going forward.

Remodeling was one of the hottest 2016 activities in the real estate industry. Some completed these remodels with the intention of immediately taking the home to market. However, others chose to enjoy the upgrades themselves but now may be ready to sell the home in 2017.

January 1 is just another day on the calendar but many use it as a day to set new goals, and as a starting place to begin measuring the new year with the past. There will be changes in 2017. Some of them significant.

In the Headlights

Trump’s Presidency will be at the forefront of the economic world for at least the first half of 2017. Indirectly, a combination of tax cuts and government spending in the form of upgrading the nation’s infrastructure and for national defense will provide a short boost to the economy in the first half of 2017. Higher paying jobs will stimulate the real estate market. However, faster GDP growth will also lead to higher interest rates that will keep the market from overheating.

Will the numbers begin foreseeing a recession later in the year? Higher salaries also mean people will gain confidence to begin importing foreign luxuries such as sports cars, French wines, Japanese electronics, as well as taking tourist dollars to all corners of the globe. Countering this are Trump’s proposed import tariffs that will lead to higher prices. Additionally, the combination of tax cuts and increased government spending has the real possibility of driving the national debt higher. Higher debt means the Federal Reserve will seek to further increase interest rates.

Neither Wall Street nor small businesses like uncertainty. The second half of 2017, may lead to more of the wide gyrations in the stock market that have become common. Small investors (with their retirement accounts) will continue fleeing the market. Will this drive them further into the real estate market as investors and private moneylenders? Only time will tell.

Changes to Dodd-Frank financial regulation will almost certainly take place in some form. But this will be complex and take more time. It could be several years but the lifting of compliance costs imposed on small banks is likely to boost home building activity. Something much needed for the residential real estate industry.

Please leave a comment if this article was helpful or if you have a question.

Author bio: Brian Kline has been investing in real estate for more than 35 years and writing about real estate investing for 10 years. He also draws upon 30 plus years of business experience including 12 years as a manager at Boeing Aircraft Company. Brian currently lives at Lake Cushman, Washington. A vacation destination, a few short miles from a national forest. With the Pacific Ocean a couple of miles in the opposite direction.

Sign up Now and get our guide on Facebook for Real Estate Professionals for Free

Sign up to the Realty Biz News mailing list to get updates from our site and also get our guide to Facebook marketing for Real Estate professionals for free