Trump likes to build things, and if you ask 100 real estate agents from around the country what is the one thing that would help them sell more homes, the most common answer would be increasing available housing inventory, especially in the affordable price ranges.
The home-building industry was nearly decimated during the housing crisis. New-home construction was almost non-existent between 2008 and 2013. During that same period of time, the country added nearly five million new households. The net result of this shortage of housing supply has been a sharp increase in home prices and an equally sharp decrease in affordability, leaving millions of would-be homeowners on the sidelines.
This has proven to be a difficult problem to solve, as rising construction costs and an increasingly complicated regulatory environment have made the business prospect for the construction of affordable homes unviable in many markets. The Trump Administration could inject a powerful boost to the industry and go a long way toward reversing the trend of decreasing homeownership rates across the country.
Members of the new administration have promised an overhaul of our financial regulations. Many leaders in the housing finance industry, believe the market would benefit by some selective regulatory relief. While nobody wants a return to the irresponsible lending, pulling back on a few regulatory levers would stimulate demand.
The share of those surveyed in Fannie Mae’s recent Home Purchase Sentiment Index Survey who reported “significantly higher household income” in 2016 increased five points to 15 percent in January, while the share of those who reported it is “a good time to sell” a house increased two points, also to 15 percent. The share of those who reported home prices will rise increased seven points to 42 percent. The Index overall increased two points to 82.7—a historical high.
Three months after the presidential election, measures of consumer optimism regarding personal financial prospects and the economy are at or near the highest levels we’ve seen in the nearly seven-year history of the National Housing Survey according to Doug Duncan, chief economist at Fannie Mae.
“Any significant acceleration in housing activity will depend on whether consumers’ favorable expectations are realized in the form of income gains sufficient to offset constrained housing affordability,” Duncan says. “If consumers’ anticipation of further increases in home prices and mortgage rates materialize over the next 12 months, then we may see housing affordability tighten even more.”
Existing-home sales closed out 2016 as the best year in a decade, even as sales declined in December as the result of ongoing affordability tensions and historically low supply levels, according to the National Association of Realtors®.
Total existing home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, finished 2016 at 5.45 million sales and surpassed 2015 (5.25 million) as the highest since 2006 (6.48 million).In December, existing sales decreased 2.8 percent to a seasonally adjusted annual rate of 5.49 million in December from an upwardly revised 5.65 million in November. With last month’s slide, sales were only 0.7 percent higher than a year ago.
Lawrence Yun, NAR chief economist, says the housing market’s best year since the Great Recession ended on a healthy but somewhat softer note. “Solid job creation throughout 2016 and exceptionally low mortgage rates translated into a good year for the housing market,” he said. “However, higher mortgage rates and home prices combined with record low inventory levels stunted sales in much of the country in December.”
Added Yun, “While a lack of listings and fast rising home prices was a headwind all year, the surge in rates since early November ultimately caught some prospective buyers off guard and dimmed their appetite or ability to buy a home as 2016 came to an end.”
National Association of Realtors
Americans are “cautiously optimistic” about the housing market, with 69 percent recently surveyed by ValueInsured believing 2017 will be a better year for real estate than 2016, and 52 percent believing housing will become more favorable under the Trump Administration.
The outlook is primarily felt among millennials. According to the survey, 62 percent of millennials believe the housing market will turn in their favor this year, while the level of confidence held by millennial non-homeowners has gone up the most in the first quarter, to a score of 61.3 in the Housing Confidence Index. The Index overall, however, has trended downward to 68.0 since September 2016—the first decline since March 2016.
The sentiment comes in contrast to the drop in share of first-time homebuyers who plan to purchase a home during the spring real estate season this year. A recent report by the National Association of Realtors reveals the percentage of first-time homebuyers who plan to enter the housing market this spring has gone down 10 percent since October 2016—before the presidential election—due to concerns over higher mortgage rates.
According to recently released data from 2016 foreclosure filings were reported on 933,045 U.S. properties, down 14 percent from 2015 to the lowest level since 2006.
The Year-End 2016 Foreclosure Market report shows that 0.7 percent of U.S. housing units had at least one foreclosure filing in 2016, the lowest annual foreclosure rate nationwide since 2006, when 0.58 percent of housing units had at least one foreclosure filing.
The District of Columbia had the highest share of legacy foreclosures with 76 percent, followed by Hawaii (66%), New Jersey (64%), Nevada (63%), Delaware (62%), and Massachusetts (61%). In terms of total number of legacy foreclosures, New Jersey led the way with 32,279, followed by New York (31,838), Florida (29,411), California (17,208), and Illinois (12,244).
Counter to the national trend, 15 states and the District of Columbia posted a year-over-year increase in foreclosure starts in 2016, including Delaware (up 37 percent); Connecticut (up 35 percent); Maine (up 30 percent); Rhode Island (up 26 percent); Arizona (up 15 percent); and Massachusetts (up 12 percent).
“The national foreclosure rate stayed within an historically normal range for the third consecutive year in 2016, even as banks continued to clear out legacy foreclosures from the last housing bubble, particularly in the final quarter of the year,” says Daren Blomquist, senior vice president at ATTOM Data Solutions, “Data still show that more than half of all active foreclosures nationwide are on loans originated between 2004 and 2008.”
More single-family homes will be constructed in 2017, but at a gradual rate, reported economists at the recent Home Builders Conference. The NAHB expects single-family construction to rise 10 percent to 855,000 units, and to 12 percent to 961,000 in 2018. according to NAHB Chief Economist Robert Dietz,
Dietz said, “While positive developments on the demand side will support solid growth in the single-family housing sector in 2017, builders in many markets continue to face supply-side constraints led by the three Ls—lots, labor and lending,” said Dietz.
Confidence and growth in the economy could give home-building a boost, with home builders optimistic that the new administration will lower construction costs. Said Dietz, “Regulatory requirements make up nearly 25 percent of the cost of a new home. Townhouse construction, Dietz said, is growing and viable, especially for first-time homebuyers, comprising 12 percent of housing starts nationally.”
On the topic of homeownership, economists expect mortgage rates to average 4.5 percent in the year ahead, and 5.3 percent in 2018. “We anticipate a stronger economy will translate into higher mortgage rates,” said Economist Dr. Frank Nothaft. “Meanwhile, we expect moderation in 2017 for rent and home price growth, but it will still be higher than inflation.” Source: National Association of Home Builders
Housing’s collective value grew to $29.6 trillion this year, a record-high reflecting 5.7 percent appreciation—an additional $1.6 trillion—in 2016, according to a recently released analysis by Zillow. The most housing value in the nation is in Los Angeles, Calif., New York, N.Y., and San Francisco, Calif., at 8.6 percent, 8 percent and 4.2 percent, in order.
The continuing growth in prices now marking a full recovery since the crash of 2008, has the potential to push more prospective homebuyers to the sidelines, says Zillow Chief Economist Dr. Svenja Gudell.
“Housing is incredibly important to us personally and to the economy as a whole,” says Gudell. “The U.S. housing stock is worth more than ever, which is a sign of the ongoing housing recovery. As buying a home gets more expensive, affordability remains a concern for many, and these numbers highlight just how much people are spending on housing.
The total value of the housing stock grew nearly 6 percent this year, a pace that will likely mean some American families are priced out of homeownership.”
Analysts predict that, nationally, home price appreciation may exceed 6 percent for the new year 2017.
Despite this year’s appreciation, approximately 60 percent of housing markets remain below values reached during the bubble years, according to the analysis.