This new year is shaping up to be a softer market than many imagined for the U.S. residential housing sector in 2017, but it's not alarming news for both homebuyers and sellers, states Fannie Mae in a new report.
"The tenor of our forecast effectively remains unchanged," says Doug Duncan, chief economist at Fannie Mae, citing FNMA's December 2016 Economic and Housing Outlook. "We're seeing signs of cautious consumers this quarter, including rising interest rates, the renewed increase in the U.S. dollar to a 14-year high and heightened uncertainty in the political sphere suggest conservatism in our outlook."
"While we are encouraged that confidence is rising across investors, consumers, businesses, economists and homebuilders, much of it appears to be in anticipation that the forthcoming administration and the new Congress will enact fiscal policies and deregulation that will help spur growth," Duncan said.
Right now, 30-year fixed mortgage rates stand at 4.31%, according to Bankrate.com. That number could easily rise, if, as expected, the Fed hikes rates two or three more times in 2017.
Despite that rising rate scenario, Fannie Mae expects home prices to "remain strong" in 2017, even as the new year brings mixed news for the mortgage and housing markets.
"The recent surge in interest rates amid continued strong home price appreciation are likely to present affordability challenges to homebuyers, especially for young adults who are looking to enter the housing market for the first time," Duncan said. "However, stronger economic growth, if it materializes, should help support incomes, affordability and the ongoing housing recovery."
Mortgage industry insiders agree, noting that interest rates remain relatively by historical standards.
"Interest rates remain low and consumers' buying power remains strong," says Patrick Boyaggi, co-founder and CEO of RateGravity, a Boston-based fintech company focused on home financing. "Moreover, in certain urban markets where rents continue to rise, the buy versus rent decision favors buying, especially with the low down payment options that exist. Fannie Mae's HomeReady Program, for example, allows as little as 3% down for a new home.
The biggest story for 2017 isn't about interest rates, says Boyaggi. Instead, it's the "confluence" of loosening credit standards, rising consumer confidence and the entry of Millennials to the home buying market. "According to Fannie Mae's National Housing Survey, the majority of young renters under age 40 still aspire to homeownership for both lifestyle and financial reasons; they have just been delaying the decision to buy," Boyaggi notes.
Other real estate professionals agree, noting that despite the media frenzy over high rates, higher mortgage rates are likely over-exaggerated.
"A Federal Reserve interest rate hike will be psychological," says Ann Stribling-Kivlan, president of Stribling and Associates in New York, N.Y. "Rates are still incredibly low - remember that 15 years ago, mortgage rates were in the double-digits."
"Money is still unbelievably cheap," Stribling-Kivlan adds. "I think this is a time to buy as rates could go up."
By and large, real estate professionals contacted by TheStreet agree with Fannie Mae that the 2017 U.S. housing market will expand, but not by leaps and bounds.
"I believe that 2017 will be better than 2016 overall, but only slightly," says Rick Sharga, chief marketing officer at Tex-X, in Irvine, Cal. "I'm expecting between 5.5 and 5.6 million in existing home sales, and prices to moderate, going up between 4.5% and 5.0% on a year-over-year basis."
Part of the reason for that moderation is that it's very likely to see mortgage interest rates increase, Sharga adds, although probably not too severely. "Most likely the rate for a 30-year fixed-rate loan will top out at or below 5.0% by the end of 2017," he says.
Despite those higher rates, it may actually be easier for mortgage consumers to get a loan next year.
"The housing recovery has been tight, credit-wise, and that may actually improve in 2017," Sharga says. "Lenders may be more willing to loan money at 4.5% or 5.0% than they were at 3.5%. Additionally, the Trump administration has promised to relax some of the regulatory constraints that have made lending difficult, expensive and in some ways too risky for the appetites of traditional lenders, and that will help mortgage borrowers."
The takeaway? Don't expect a ton of fireworks in the nation's housing market in 2017, but the hoopla over higher rates should temper mortgage activity - just not in a significant manner.