REAL ESTATE NEWS...US construction spending hits highest level in 10 years

By Martin Crutsinger

WASHINGTON (AP) -- U.S. builders boosted spending on construction projects for a second straight month in November, pushing activity to the highest level in more than a decade.

Construction spending rose 0.9 percent in November after a 0.6 percent increase in October, the Commerce Department reported Tuesday. The increase reflected solid gains in home construction, nonresidential building and government construction activity.

The gains in all three categories pushed total construction to a seasonally adjusted annual rate of $1.18 trillion, the highest point since April 2006 when a housing boom fueled building.

Economists believe construction will continue to show gains in 2017, reflecting a strong job market with unemployment at the lowest point in nine years.

Financial markets sent stock prices to record highs following the election of Donald Trump, reflecting in part enthusiasm over his vows to increase spending on projects to repair and replace the country's aging infrastructure.

For November, the 1 percent rise in residential construction reflected a 1.8 percent rise in single-family construction which offset a 2.7 percent drop in the smaller and more volatile apartment construction sector.

The 1 percent rise in nonresidential construction followed a 1.6 percent decline in October. The gains in November were led by 7 percent jump in hotel and motel construction.

The 0.8 percent advance in government projects reflected a 3.1 percent rise in spending at the federal level and a 0.6 percent increase in construction by state and local governments.

President Barack Obama sought for a number of years to get Congress to approve higher infrastructure spending, but he was blocked by opposition from Republicans who complained that the projects would increase budget deficits. Democrats in Congress have already expressed support for Trump's proposals to boost construction spending. His ideas, however, may still face opposition from Republicans worried about high deficits.

REAL ESTATE TOPICS...California's housing affordability problems 'as bad as they've ever been in the state's history,' housing director says

By Liam Dillon

California’s housing affordability challenges remain daunting and continue to increase, according to a draft report from the state’s Department of Housing and Community Development released Tuesday.

The report found:

• Housing production over the last decade fell more than 100,000 new homes short of demand and continues to lag, leading to surging prices at all income levels.
• The state’s homeownership rates are at their lowest since the 1940s.
• One-third of the state’s renters spend more than half their income on housing costs.
• California has 12% of the nation’s population, but 22% of the country’s homeless population.

“What the report tries to get at is that the facts on the ground for a typical California family are really as bad as they’ve ever been in the state’s history,” said Ben Metcalf, director of the Department of Housing and Community Development.

The report includes a range of potential solutions, including streamlining local and state land-use and environmental rules and boosting funding for low-income housing.

“If there is good news in all this, these are, in some cases, problems that we have created through local and state policies,” Metcalf said. “And because these are challenges that have been created through policies, we know we can fix them.”

The state has not passed major housing legislation in recent years, most notably failing to reach a deal on Gov. Jerry Brown’s proposal to limit some local review of housing projects and spend $400 million on low-income housing subsidies. This year has already seen a series of housing proposals, including plans for billions in new spending as well as faster permitting for cities that have low housing production.

REAL ESTATE TRENDS...Newest Housing Decor Trends for 2017

By Jim Weiker

Say goodbye to shiplap siding and hello to green furniture.

And will 2017 finally be the year homeowners welcome something other than stainless steel into their kitchens?

To find out, The Dispatch spoke with design experts about what trends and fashions will be heading into central Ohio homes in the new year.

Green

Pantone, which bills itself as "the world-renowned authority on color," has identified "greenery" as 2017's color of the year. The "life-affirming shade" is a slightly muted bright nature tone.

"We've been watching green gain momentum in the last few seasons," said Sue Wadden, director of color marketing for Cleveland-based Sherwin Williams, whose 2017 color forecasts includes several shades of green.

Furniture, fabric, paint and wallpaper manufacturers responded with an array of products boldly decked out in green.

Experts say green illustrates a bolder use of color in general in homes, and a move away from the grays that have dominated interiors for the past several years.

Smart tech

Designers are mixed over the future of elaborate "smart-home" technology, which for some homeowners is more trouble than useful. (How many people will rely on an app to check their refrigerator temperature?)

Nonetheless, homeowners should expect to see more easy-to-use technology this year, such as smart door locks and smart light bulbs. Monica Miller, a designer with the J.S. Brown & Co. remodeling firm in Columbus, especially likes the Phillips Hue bulbs, which allow homeowners to adjust light through a smart phone without a lot of complicated wiring.

"Not only do you have the programability — we've had that for awhile — but with LEDs, you can change the color in the lamp," she said.

Marble

This classic countertop material took a backseat to granite and then quartz because it is vulnerable to staining, chipping and fading. But designers, drawn by marble's rich natural tones and timeless style, are returning to the material, especially for backsplashes and secondary countertops that don't get heavy use.

And for those still worried about marble's durability, a growing number of quartz companies are making a convincing faux marble.

"The look of marble is here to stay, whether you choose to go natural or with something like quartz," said Kerrie Kelly, the home-design expert for Zillow Digs.

Waterfall

Countertops are falling over the edge. Instead of ending an inch over the cabinets, countertop materials are increasingly being used for the sides of the kitchen island as well, in what is called a "waterfall" design. For decorators, the trend illustrates the growing desire for contemporary lines.

"Cleaner cabinet styles, simpler doors and less molding are in," Miller said.

Beyond stainless

Several appliance companies are rolling out alternatives to stainless steel in anticipation of that material's dominance finally giving way.

KitchenAid, Samsung and LG have introduced "black stainless steel," Jenn-Air sells "black floating glass" and GE offers "slate," all of them darker variations of stainless. In addition, several high-end European lines offer appliances in bold, bright shades.

And finally, classic white may be on the way back.

"People still love white-on-white kitchens," said Susan Matrka, owner of Susan Matrka Interiors in Columbus. "The icy white appliances pair up really well with white cabinets."

Velvet

Comfort is helping to push leather to the side on upholstered furniture. The soft weave of velvet in particular is expected to continue gaining ground this year, often in patterns.

"We're seeing velvet used in different ways," Kelly said. "People are looking for comfort and softness instead of the industrial look of leather."

Bold floors

Wood is expected to continue dominating under foot, but designers expect bolder floor treatments, especially in kitchens, to make a comeback this year.

"We're seeing things like texture, color and dimension — bold patterns used as a statement floor or statement wall," said Heather Johnson, director of marketing for the Hamilton Parker Co. in Columbus. "Outside of the bold, bright colors, we're talking about things that have actual patterns printed on the tile."

First-floor bars

Bars are coming out of the lower-level rec room onto the main floors of homes, reflecting the broader trend of illustrating that homes are becoming entertainment zones.

"The built-in bar plays off that livable design concept," Kelly said. "With built-in shelving, it makes hosting a lot of fun."

REAL ESTATE TOPICS...Millennials, Mortgage Rates And Other Big 2017 Housing Market Factors

BY Lydia O'Neal

With mortgage rates and home prices rising, the housing market has become more hostile to home buyers in 2016. But in the next year, major factors that influence the housing market stand to change both for the better and the worse. Read on for what people looking to settle down into a new home can expect in 2017.

Mortgage rates will soar.

Mortgage rates have been on the rise for nine weeks straight, with 30-year fixed rates reaching 4.32 percent Thursday, up from 3.47 percent at the end of October. The increase is a result of the Federal Reserve’s decision to hike its interest rate target in mid-December and the surge in U.S. Treasury yields over the past several months—both of which mortgage rates follow closely.

The rise in mortgage rates should continue through 2017, as Fed Chair Janet Yellen signaled plans to hike the federal funds rate target another three times next year as the central bank eases away from the near-zero rates it’s maintained since the recession, a move intended to help stimulate home buying after the crisis.

But prices likely won’t.

According to the S&P CoreLogic Case-Shiller National Home Price Index, average U.S. home values have toppled pre-recession levels. The index reached 185.06 in October, climbing from a low point of 134.01 in February 2012. The housing market research site Zillow’s Home Value Index indicates a similar trend, with average prices rising to $193,000 as of December from a nadir of $151,000 in February 2012.

But this trend is expected to slow in 2017. The Zillow index, which recorded 6.5 percent growth in home values over the course of 2016, predicted that growth rate would drop by more than half, to 3.2 percent, in 2017, sending the average home price to $198,000 by the end of next year. A study by home market information site Realtor.com forecasted a similar slow in the rise of home prices next year, to 3.9 percent from 4.9 percent.

Millennials will take over.

The Realtor.com study also estimated that millennials would make up a third of home buyers next year. A Zillow report indicated that half of home buyers are under the age of 36, nearly as many are first-time buyers and millennials “are the most likely to have plans to move in the next year.”

This trend would mark a turnaround from the past few years, during which living with parents surpassed all other housing arrangements among 18- to 34-year-olds for the first time in the modern era.

Getting a bigger mortgage will be easier.

In line with the rise in home prices over the past couple of years, the Federal Housing Administration announced Dec. 1 its decision to raise the cap on its loans in “most counties across the country” next year to $636,150 from $625,500 in 2016. (See if your county got an FHA loan ceiling increase here.)

FHA loans are popular among first-time buyers and people with lower credit scores, as they offer relatively miniscule down payments and cover mortgage insurance, protecting the lender from borrower default. Adjusting the price ceiling on these loans gives these new homebuyers—namely, the influx of millennials—a bit of leeway.

Demand stands to outweigh supply.

Part of the reason for rising prices has been a shortage in home inventories available to buyers, especially first-time buyers looking for starter homes. According to home market information site Trulia, the number of available homes dropped 9.1 percent over the past year, while the number of starter homes on the market fell 12.1 percent—the steepest decline in three years. As National Association of Realtors Chief Economist Lawrence Yun wrote in a Dec. 13 post on NAR’s site, the need to meet demand from the influx of young buyers will fall on the shoulders of construction companies.

“What is needed is for homebuilders to boost construction and for investors who bought for the purpose of renting to unload those rental properties onto the market soon,” Yun wrote, adding that, since landlords enjoy such high incomes from renting, they’re unlikely to sell to permanent residents. “The only way to bring additional supply, therefore, is for homebuilders to get really busy.”

REAL ESTATE NEWS...Housing outlook brightens despite higher rates

By Paul Davidson

The housing market is expected to pick up moderately next year on steady job and income growth and an easing supply crunch, but rising mortgage rates are likely to temper the gains, economists say.

The "X" factor is President-elect Donald Trump. Some of his proposed policies could juice home sales and starts more than anticipated while others may constrain the market.

“We think 2017 is going to be another solid year” for housing, says Ralph McLaughlin, chief economist of real estate research firm Trulia. “But homebuyers will continue to face headwinds.”

Existing home sales are projected to increase 2% to a post-recession high of about 5.5 million in 2017, says Lawrence Yun, chief economist of the National Association of Realtors. But that’s less than this year’s 3.3% gain and below the 5.75 million considered normal in light of population growth.

Among the chief stumbling blocks is the rise in mortgage rates. Since late October, the average 30-year rate has climbed from 3.47% to 4.32%, boosting the monthly payment on a $200,000 mortgage by $97. Yun estimates the rate will increase to about 4.6% by the end of 2017, adding an another $34 to that monthly mortgage check.

Rates are rising in anticipation of higher inflation under Trump’s fiscal stimulus plan and faster interest rate hikes by the Federal Reserve.

McLaughlin notes that with rents soaring in recent years, owning a home is still a far better deal than renting in most of the country. But as mortgage rates edge higher, Yun says some low- and moderate-income buyers will no longer qualify for a loan.

“People at the margins (will be) priced out,” he says. He estimates the increase in rates over the next year will mean 400,000 fewer home sales than if borrowing costs were flat.

Kendall Walker, a real estate agent at Redfin in Northern Virginia, says she hasn’t yet seen customers ditch their house hunts because of higher rates. But she adds, “We’ve had some buyers come down in price” to offset the bigger mortgage burden, reducing the size of their dream homes by as much as 30%.

Fortunately, Yun says, steady job and pay gains will result in an overall pickup in home sales in 2017. Many economists expect current average annual earnings growth of 2.5% to approach 3% by the end of next year as the low, 4.6% unemployment rate forces employers to bid up for workers.

Another positive development is the prospect of somewhat more ample supplies. There was a four-month inventory of homes nationally in November, according to the Realtors group, well below a healthy six-month stockpile. That has crimped sales and pushed up prices, which have risen 5% to 6% the past couple of years.

One reason for the meager inventory: the housing crash left many homeowners owing more on their mortgages than their homes were worth. Some have hesitated to unload their units until they realize bigger equity gains, McLaughlin says. Also, many investors snapped up cheap homes during the crisis and rented them out, leaving fewer on the market.

But as a result of rising prices, the share of homeowners who are “seriously underwater” fell to 10.8% in the third quarter from 29% in 2012, according to ATTOM Data Solutions and RealtyTrac. Higher home values also have prodded more investors to sell their units, a trend McLaughlin expects to continue.

Meanwhile, home builders are expected to respond to the tight supplies by putting up more houses. Housing starts are estimated to increase 10% from 1.18 million this year to about 1.3 million in 2017, according to a survey of 53 economists by Blue Chip economic Indicators. That’s not too far from the 1.5 million deemed normal and well above the roughly 400,000 bottom in 2010. Yun says single-family home construction will drive the gains.

As the fresh supplies hit the market, he predicts the current four-month inventory of existing homes will increase to five months by midyear, helping moderate annual home price gains from 5.5% this year to about 4% in 2017.

That would still outpace wage growth for many Millennial first-time homebuyers, a group that also will be particularly squeezed by higher mortgage rates. Yet Yun says many Millennials are likely itching to move out of their parents’ homes and settle down after postponing marriage and families for several years. He predicts the share of homes bought by first-time buyers will rise from 32% in November to 35% next year – still below a normal 40%.

Trump’s policies are a wild card. His tax cuts could put more money in buyers’ pockets and goose demand, Goldman Sachs says. And his proposal to lift some financial regulations could make it easier for some consumers to obtain mortgages, McLaughlin says.

But his proposed restrictions on immigration may curtail population growth and dampen housing demand while exacerbating a construction worker shortage that’s already constraining housing starts, Goldman and McLaughlin say.

REAL ESTATE TOPICS...What you should know about taxes on rental income you earn on a home you own

By Ilyce Glink and Samuel J. Tamkin

I am an “accidental real estate investor” in that I lived in my condo more than 15 years, at which time my job relocated and I decided to rent out the condo until such time as I could retire (about four to eight years, depending on how long I can keep my job, given my age).

I am claiming depreciation against rental income, per my CPA. If upon retiring I resume living in my condo, does that avoid having to pay the 25 percent tax on depreciation taken, because essentially it is “restated” as it were to a personal home rather than a rental? If so, is there some minimum number of years I’d have to live there before selling?

Your question is a good one, but a complicated one for the space we have available each week, so we’ll have to simplify the answer: Your condominium is effectively both a residential property and an investment property. Let’s discuss both aspects of your ownership and future sale as it stands today.

As a residential property, if you live in the property as your primary residence for two out of the last five years, when you sell the property you would get to exclude from federal income taxes all profits up to $250,000 (or, $500,000 if you are married).

That’s in simple terms. So most homeowners will not have to deal with paying taxes to the federal government as most sellers don’t have a profit on their sale that would exceed $250,000 for single sellers and $500,000 for married couples.

On the other side, if the property is an investment property, you generally have to pay taxes on the profits at the time you sell that property along with repaying the IRS for the recapture of the depreciation you’ve already taken.

Say you have a profit of $50,000 on the sale of an investment property and you took $10,000 in depreciation over the years on that property. The first thing that would happen is that you would have to pay taxes on the $50,000. Since you owned the property for more than one year, the IRS would bill you at your capital gains tax rates of up to 20 percent. You will also have some other taxes to pay, but those are substantially less.

[More Matters: How to make sure your mortgage is cleared once you pay it off]

Now on the recapture of depreciation side, we said you received $10,000 in depreciation over the years. The IRS would expect that depreciation to be repaid. The repayment would be at a rate of up to 25 percent. Depending on your tax situation, you’d see that you’d have to pay $10,000 or so in capital gains taxes and up to $2,500 in recapture of the depreciation.

Here’s where it gets even more complicated. Since your property is now both residential and investment at the time of the sale, your accountant will have to do some computations. In the most simple of terms, you might have to take the total years you owned the property as a residence and the total years you owned the property as an investment property. Based on that information, the accountant will be able to determine the amount that you’ll pay in taxes on the “investment” side of your ownership and what, if any, taxes you’ll own on the residential side of the sale.

The computation can get pretty complicated and as we said earlier, a bit too involved for our column, suffice to say that you may have some taxes to pay on the investment side, but the amount you will owe will go down the longer you own and live in the property.

REAL ESTATE NEWS...U.S. home sales near 10-year high as mortgage rates rise

By Lucia Mutikani

WASHINGTON (Reuters) - U.S. home resales unexpectedly rose in November, reaching their highest level in nearly 10 years, likely as buyers rushed into the market to lock in mortgage rates in anticipation of further increases in borrowing costs.

The third straight monthly increase in existing home sales, reported by the National Association of Realtors on Wednesday, suggested housing would contribute to economic growth in the fourth quarter after being a drag in the previous two quarters.

"The strength in home sales, if it holds, will provide a big boost for consumer spending in 2017 and makes us more confident about our outlook for stronger growth next year," said Chris Rupkey, chief economist at MUFG Union Bank in New York.

Existing home sales increased 0.7 percent to an annual rate of 5.61 million units last month, the highest sales pace since February 2007. October's sales pace was revised down to 5.57 million units from the previously reported 5.60 million units.

Economists had forecast sales slipping 1.0 percent toa 5.50 million-unit pace in November. Sales were up 15.4 percent from a year ago. They rose in the Northeast and South, but fell in the Midwest and West last month. Mortgage rates have surged in the wake of Donald Trump's victory in the Nov. 8 presidential election. Trump's proposal to increase infrastructure spending and slash taxes is seen as inflationary.

Since the election, the interest rate on a fixed 30-year mortgage has increased about 60 basis points to an average 4.16 percent, the highest level since October 2014, according to data from mortgage finance firm Freddie Mac.

Mortgage rates are expected to rise further after the Federal Reserve raised its benchmark overnight interest rate last week by 25 basis points to a range of 0.50 percent to 0.75 percent. The U.S. central bank forecast three rate hikes next year.

The prospect of higher mortgage rates could be pushing undecided buyers into the market. But the combination of higher borrowing costs and rising house prices, which are outstripping wage growth, could hurt home sales.

House prices have been marching ahead amid a chronic shortage of properties for sale. The median house price was $234,900 last month, a 6.8 percent increase from a year ago.

Economists, however, expect higher mortgage rates to have a minimal impact on home sales as the labor market nears full employment and the economy strengthens.

'AT A CROSSROADS'

"This is a housing market at a crossroads," said Stephen Phillips, president of Berkshire Hathaway Home Services in California.

"The higher mortgage rates we've seen since the election will likely slow activity and price increases, but faster income growth might more than offset that trend as we look toward next year's spring market."

A separate report from the Mortgage Bankers Association on Wednesday showed applications for loans to buy a home increased 3 percent last week from the previous week.

The dollar <.DXY> was trading lower against a basket of currencies after the data, while prices for U.S. government bonds rose. U.S. stocks were slightly weaker, with the Dow Jones industrial average <.DJI> still hovering near the 20,000 mark.

The PHLX housing index <.HGX> rose 0.30 percent as shares in the nation's largest homebuilder, D.R. Horton Inc <DHI.N>, gained 0.32 percent.

Last month's increase in home resales means more brokers' commissions, which are included in the residential component of the gross domestic product report.

The Atlanta Fed is forecasting GDP rising at a 2.6 percent annual rate in the fourth quarter. The economy grew at a 3.2 percent pace in the July-September period.

Existing home sales remain constrained by a persistent shortage of properties available for sale. Last month, the number of unsold homes on the market fell 8.0 percent from October to 1.85 million units.

Supply was down 9.3 percent from a year ago and has now declined for 18 straight months on a year-on-year basis. At November's sales pace, it would take 4.0 months to clear the stock of houses on the market, down from 4.3 months inOctober. A six-month supply is viewed as a healthy balance between supply and demand.

Housing inventory could remain an obstacle, with a report last week showing a plunge in home construction in November. With supply tightening, house prices notched their 57th consecutive month of year-on-year gains in November.

Rising house prices are increasing equity for homeowners and encouraging some to put their homes on the market, but making it more difficult for first-time buyers to purchase homes.

First-time buyers accounted for 32 percent of transactions last month, well below the 40 percent share that economists and realtors say is needed for a robust housing market.

REAL ESTATE NEWS...US existing home sales hit fastest pace since 2007

Washington (AFP) - Existing homes in the United States sold at the fastest pace in nearly 10 years in November, pointing to the sector's sustained strength, according to the monthly report released Wednesday.

Sales of condos, co-ops and single-family homes gained 0.7 percent to hit a seasonally adjusted annual rate of 5.61 million for the month, the highest since February 2007 and 15.4 percent above a year ago, according to the National Association of Realtors (NAR).

NAR chief economist Lawrence Yun said the current healthy jobs market, and the fact home buyers anticipated an increase in interest rates, caused growth in sales for the third consecutive month.

And "it's no coincidence that home shoppers in the Northeast -- where price growth has been tame all year – had the most success last month," Yun said in a statement.

The November result beat an analyst forecasts, which expected sales to cool from the big October increase, and predicted a rate of only 5.5 million.

The median home price rose 6.8 percent over the same month last year to $234,900, marking 57 consecutive months of year-on-year gains.

The inventory of unsold homes is down to a four month supply, from 4.3 months in October. Year-over-year, inventory has fallen for 18 straight months, and declined eight percent in November to 1.85 million existing homes on the market.

Inventory is now 9.3 percent below where it was a year ago, according to NAR, a continuing source of concern as new construction is not keeping pace with demand.

REAL ESTATE NEWS...Existing US Home Sales Reach Highest Since February 2007

By PAUL WISEMAN

Americans bought homes in November in the fastest pace in nearly a decade. But rising mortgage rates, a deepening shortage of houses and higher prices are likely to weigh on the market next year.

The National Association of Realtors said Wednesday that sales of existing homes rose 0.7 percent last month to a seasonally adjusted annual rate of 5.61 million. That was up from a downwardly revised 5.57 million in October and the highest since sales hit a 5.79 million pace in February 2007. Sales were up 15 percent from a year earlier.

Sales rose 8 percent in the Northeast and 1.4 percent in the South, but fell in the West and Midwest.

Fewer than 1.9 million homes were on the market, down 9 percent from a year earlier. The tight supply pushed the median price to $234,900 last month, up 6.8 percent from a year ago.

The Commerce Department reported Friday that housing starts fell 18.7 percent last month to a seasonally adjusted 1.09 million.

"We have a housing shortage," said Lawrence Yun, the Realtors' chief economist. "We are not building enough housing."

At the same time, the rate on the benchmark 30-year fixed rate mortgage last week rose to a 52-week high of 4.16 percent. U.S. interest rates have climbed since the Nov. 8 election of Donald Trump. Investors have bid rates higher because they expect Trump's program of tax cuts and higher spending on defense and infrastructure will boost economic growth and inflation.

The Realtors predict that higher rates and declining affordability in many parts of the country likely will lead to only a small gain in sales of existing homes next year — a 2 percent increase to about 5.52 million.

"Some prospective buyers are going to be straining to get to an affordable monthly payment with mortgage rates higher and may take a harder line on prices (or settle for less home) to make the numbers work," Stephen Stanley, chief economist at Amherst Pierpont Securities, said in a research note.

Still, a healthy job market has given more Americans the confidence to shop for homes. Unemployment is at a nine-year low 4.6 percent.

REAL ESTATE TOPICS...7 housing predictions for 2017

By Nela Richardson

Heading into 2017, Redfin data scientists and thought leaders put their heads together to predict what the housing market has in store for the new year, under a new president.  The Trump administration ushers in three major policies that could significantly affect the long-term trajectory of the U.S. real estate market: infrastructure spending, tax cuts and changes to immigration policy. Next year, as these policies begin to take shape, their effect will mainly play out in new construction and mortgage rates.

Strong buyer interest, better access to credit and a modest increase in the number of homes for sale will allow home sales to grow, but not as much as in 2016.  Home price growth will hold steady. Homes will sell even faster next year, breaking this year’s record as the fastest real estate market. Although growth in new construction may be hindered by new immigration policies, we still expect to see more homes built in second-tier cities and more millennial homebuyers moving from the coasts to smaller and inland markets where they can find affordable starter homes that meet their aesthetic requirements.

1. The housing market will continue to grow, but at a slower pace due to affordability pressures

Redfin

Next year the new administration will lead a shifting U.S. economy. Baby boomers will become less economically relevant as millennials–the largest generation of Americans— continue to come of home-buying age. Superstar cities will create much of the job growth, pushing wages in those cities up.

Yet, the percentage of homes in America’s largest cities that are affordable on the median income has declined the past two years and will continue to fall in 2017. Making things harder for people looking for  affordable homes, a lot of homeowners who have lived in their homes for several years and might be thinking about moving won’t list their homes for sale this year. That’s because they are among the millions of homeowners locked into a mortgage rate below 4 percent. Rising mortgage rates will likely work as an incentive for these people to stay in their homes to hold onto that low mortgage payment, or rent them out instead of selling them to make an increasing profit. We think this will lead to a permanent shortage of starter homes for sale, even as the inventory for expensive homes improves next year.  

Even with rising affordability pressures, Redfin expects median home sale prices to increase 5.3 percent year over year, similar to the estimated 5.5 percent this year. Existing homes sales are forecasted to increase 2.8 percent in 2017, compared to the estimated 3.4 percent increase in 2016.

We believe price increases will hold steady despite slowing sales growth, because homebuyer demand is stronger now than it was at the same time last year, and because we foresee a small uptick in homes for sale.  

The Redfin Housing Demand Index, based on thousands of Redfin customers requesting home tours and writing offers, increased 7.7 percent in November year-over-year. In addition, homebuyer demand for lower-priced homes is stronger now than a year ago. Note that this measure removes Redfin’s market share growth to reflect general buyer demand, not company growth.

We predict that inventory will recover slightly, up 1.7 percent year over year, after falling an estimated 3.4 percent in 2016. However, because we haven’t seen any increase in supply in the most affordable third of the housing market in more than eight months, we expect most of next year’s increase to be in the most expensive third of the market. Sales would be stronger if there were more starter homes on the market to meet demand from millennial homebuyers. The lack of starter homes will keep sales growth weak next year.

“An attribute that seems to define the Denver housing market going into 2017 is the high price of a typical starter home here,” said Stephanie Collins, a Redfin real estate agent in Denver. “Our entry-level homes are now significantly more expensive than they were a handful of years ago. There are far fewer of them available and a lot more buyers in the market searching for them. That, of course, is great news for people thinking of selling and moving up this year. We’re working closely with our first-time buyer clients to make sure they’re educated on the strategies they can use to win bidding wars and protect themselves in this uber-competitive market.”

2. 2017 will be the fastest real estate market on record

Redfin

We expect 2017 to break the 2016 record as the fastest market on record, measured by the average number of days homes spend on the market before going under contract. This year, the typical home stayed on the market just 52 days, the shortest time recorded since Redfin began keeping track in 2009. Though buying a home generally takes longer than selling one, the trend is getting faster. Redfin buyers spent an average of 83 days searching for a home, seven days fewer than the same time last year.

Demand for short-notice tours has only increased. Five years ago, one in three requests were for same-day tours; today it is two in three. Same-day tours grew 27 percent so far in 2016 compared to the same period last year, while the number of home tours completed by Redfin agents grew 19 percent, accounting for market share growth.

Technology and customer behavior will continue to play a role in speeding up the homebuying and selling processes. The next generation of real estate technology will see innovation shift from online listings to hardware and real-world services that increase the efficiency of real estate transactions.

“Instead of merely being informed about homes for sale, homebuyers and sellers are looking for a competitive edge in the market. They want technology that will let them be the first to tour it and first to make an offer. We’re continuing to invest in technology that helps our customers move fast when they want to,” said Redfin chief technology officer Bridget Frey.

“More and more there are buyers who are comfortable with an online offer process that makes it easier and faster to close a deal,” said Karen Krupsaw, senior vice president of real estate operations at Redfin. “There’s a new mindset that the home purchase isn’t the once or twice in a lifetime move it once was and the wide acceptance of technology makes online offer writing a reasonable and often preferred approach for buyers. People see it as more of a transaction. They want to get it done efficiently and move on.”

3. New-construction growth will slow

Redfin

Single-family new construction increased by 9 percent in 2016, but it’s still much lower than historical averages due largely to labor shortages. Given that nearly one in four construction workers are foreign-born, stricter immigration policies from the Trump administration are likely to make the problem worse. We think growth will slow to 6 percent in 2017 if these policy changes go into effect next year. Unfortunately, this affects the availability of affordable starter homes the most, which means higher prices for first-time buyers.

At present, the number of construction workers employed in residential housing is 40 percent lower than its 2006 peak.

4. Mortgage rates will increase, but not too much

Redfin

We expect mortgage interest rates to increase, but to no higher than 4.3 percent on the 30-year fixed rate. Already, the 30-year fixed mortgage rate has increased from 3.5 percent at the end of October to just above 4 percent following the election. The recent rise in rates is largely attributed to Wall Street optimism regarding Trump’s proposals for increased infrastructure spending and tax cuts. In short, Wall Street is now anticipating higher economic growth and inflation in 2017, and reshuffling to stocks from bonds. In general, when investors buy fewer bonds, bond prices fall (yield rises) which pushes up mortgage rates.

Rates are still very low relative to historical averages and expected to remain lower than in 2015 when the 30-year fixed rate was 4.5 percent.

5. More people will have access to home loans

Starting in 2017, the government-sponsored mortgage giants Fannie and Freddie will back bigger mortgages for the first time since 2006. The loan limits insured by these companies will increase to $424,100 from $417,000 in most regions of the U.S. In expensive housing markets, the allowable loan size increases from $636,150 from $625,500. This change makes it easier for more homebuyers to qualify for a mortgage in high-priced markets.

The Trump Administration recently suggested that they plan to privatize Fannie and Freddie.  We expect that proposed changes to the companies would not affect the mortgage market until 2018, due to the lengthy political process of repealing their charter.

Additionally, as the Federal Housing Administration (FHA) has achieved sounder financial footing, there is an increased likelihood that the White House will further lower FHA fees. These fees make it more costly for first-time buyers to purchase homes. In addition to a mortgage rate, FHA borrowers pay a one-time upfront fee of 1.75 percent of the mortgage balance and annual premiums of 0.85 percent. In 2015, the Obama administration lowered annual premiums from 1.35 percent, but these fees are still higher than the 0.60 percent rate in 2011. The upfront FHA fee hasn’t budged in five years, and is much higher than the 1 percent rate it was in 2011.

Finally, in 2016 large financial institutions such as Bank of America, JPMorgan, Wells Fargo and Quicken all introduced mortgages requiring as little as 1 percent to 3 percent down. We expect increases in the availability of low downpayment mortgages to draw more millennial buyers into the housing market.

6. Millennials will move to second-tier cities

Redfin

In the final stretch of the 2016 housing market there have been more first-time buyers entering the market, particularly millennials aged 28-31. However, they’re not into fixer-uppers. Forty-one percent of first-time buyers surveyed by Redfin chose design quality, floor plan and finishing touches as the top features they look for in a home, surpassing other factors like green space (34 percent), length of commute (32 percent) and property taxes (15 percent). In order to get the high-end finishes and design styles they want, they’ll have to buy in more affordable cities like Raleigh, North Carolina, Austin, Texas, and North Port, Florida, which lead the country in the number of new residential building permits per 1,000 people.

“First-timers are looking for high-end features and amenities in their starter homes,” said Scott Nagel, president of real estate operations at Redfin. “Millennials especially are looking for high-quality appliances and other finishes in exchange for giving up the flexibility that comes with renting.”

7. Real estate commissions will continue to fall

As alternative real estate brokerages become more common, people will pay less in commissions. A 2016 Redfin survey of 2,000 people who bought or sold a home in the last year showed that most sellers got a discount on the commission they paid to their broker, and so did almost half of buyers. This was a big increase from 2015 when just 37 percent of buyers got a refund of at least $500.

As a growing number of disruptive companies offer new, money-saving ways to buy and sell homes, we expect more consumers to adopt these approaches. Additionally, we expect that among people who use traditional brokerage services to buy or sell their homes, more will negotiate the commission paid to their agents. Either way, the result is more people saving more money on real estate fees.

Politics will play a larger role in next year’s housing market than in years past. The Trump administration proposals on new infrastructure spending, mortgage market reforms and changes to immigration will shape the 2017 housing market amidst strong buyer demand and mounting affordability pressures from higher prices and mortgage rates.