The real estate market is constantly evolving and it looks as though 2017 will be another year of change. Planning on buying or selling a home in the new year? It is beneficial to know what is in store for the market. Here are some trends to keep an eye on as we transition into the new year.

Rates are on the rise

The Federal Reserve raised interest rates this month, which is only the second time they have done so since 2006. And they foresee three more increases happening in 2017. As a result of these increased interest rates, mortgage rates will also rise. As a matter of fact, mortgage rates have already begun to rise. What does this mean? Essentially it means that it will be more difficult for potential homebuyers to afford their dream home. But don’t despair quite yet. Redfin Chief Economist, Nela Richardson, stated in a recent blog post, "We expect mortgage interest rates to increase, but to no higher than 4.3 percent on the 30-year fixed rate." So while these may seem high, it is actually still a better deal than historical norms.  

Increased residential construction

While there is some debate about construction rates in the coming year due to the impending presidential change, largely, home construction is trending upward. The average annual rate of new groundbreakings has reached 1.163 million rate so far in 2016, up by about 5% from 1.108 million in 2015.

Expect this to continue in 2017, as home builders are encouraged by higher wages, increased buyer-demand and looser credit.

More credit and lower FHA fees

Speaking of credit, while interest and mortgage rates look to be increasing, mortgage credit will likely be more readily available due to slightly more relaxed lending standards. Redfin’s Richardson mentioned that the Federal Housing Administration (FHA) will “further lower fees it charges first-time homebuyers,” which continues the trend that started in the Obama administration, which lowered fees in 2015.

In addition, starting in 2017, large financial institutions such as JP Morgan Chase and Wells Fargo and government-owned mortgage companies like Fannie Mae and Freddie Mac will start backing larger mortgages for the first time in over a decade, making it easier for buyers to purchase a home, even in a more expensive market.

Flocking to smaller cities

Top-tier economic cities like New York, San Francisco, and you guessed it, our very own Seattle, have seen property values rise as major corporations find new headquarters and new employees gather to take advantage of these high-paying jobs. As a result, new construction is often unable to keep up with these influxes for one reason or another, thus putting a strain on the real estate markets in these respective cities (and beyond).

Young folks, particularly millennials, are interested in moving to medium-sized cities, which may not have the same professional opportunities as their larger counterparts, but provide housing affordability and availability. Cities like Raleigh, North Carolina and Fort Collins, Colorado have seen building permit issuance rise dramatically over the past six years as they entice the younger generations who are seeking lower asking prices. This trend should continue in the coming year.

Influx of foreign buyers

Another reason to avoid the big cities, the influx of foreign buyers in cities like New York and Los Angeles is driving prices beyond the affordable. Scott Brown, global head of real estate at Barings Real Estate Advisers writes, "U.S. and Europe continue to attract growing amounts of foreign capital, especially from Asian investors.”  In particular, buyers from China are often looking for places to invest, away from repressive financial policies in their own country. These wealthy buyers are able to purchase large plots of land to build into condominiums and large apartment complexes that will have high price tags and rents. This trend will continue to rise steadily as we head into 2017.

Takeaway

While 2017 may be a year of real estate change and potential uncertainty, it is crucial to be aware of what can and will be affecting the market. Stay up to date on the happenings of the economy and market with me as we head into the fresh new year.