Say what you will about the economy; for homeowners, 2016 was a great year. In fact, it was the best year in a decade, according to the National Association of Realtors.
Equity rose, unemployment dropped and people refinanced to some of the lowest 30-year fixed interest rates around. Sellers cashed out. Buyers locked in stable housing costs and escaped rising rents. All in all, last year put homeowner equity at $13 trillion at the end of the third quarter, up $7 million from its low in the first quarter of 2009.
Best of all, median single-family existing home prices increased in 89% of all measured markets, according to NAR. San Jose, CA still ranks as the most expensive area to buy a home with a median home price over $1 million. San Francisco ranked second with a $837,500 median single-family home price.
West coast homeowners saw a 9% gain in home prices last year, according to NAR. The Northeast experienced a 6% increase while the Midwest and South rose around 2.5%.
“Buyer interest stayed elevated in the most areas thanks to mortgage rates under 4% for most of the year and the creation of 1.7 million new jobs edging the job market closer to full employment,” said Lawrence Yun, chief economist at NAR. “At the same time, the inability for supply to catch up with this demand drove prices higher and continued to put a tight affordability squeeze on those trying to reach the market.”
True, inventory is at a record low. Nationally, there was just a 3.9-month supply of houses for sale at the end of the year. In a healthy market, there would be a 6-month supply.
What to Expect This Year:
- Slower Sales — Rising home prices paired with rising interest rates could impact affordability. “Even a pick-up in wage growth may be insufficient to compensate the impact of higher mortgage rates and home prices,” said Yun.
- Strangled Inventory — Despite strong demand, new construction housing has not kept pace. One reason: there’s a shortage of available skilled workers. In a low inventory market, prices rise.
- Rising Prices — Home prices have been rising at about 6% year over year, according to Freddie Mac. Prices will continue to increase but more slowly. In 2017, Freddie Mac expects about a 5% increase followed by a 4% increase in 2018. But that doesn’t mean buyers should wait to buy, incomes are not keeping up with home price appreciation. It’s best to buy now, lock rates and gain equity.