Last year was a good one for buying a home. Mortgage rates stayed at some of the literal lowest rates in history for extended periods of time, and the Federal Reserve Board failed to follow through with any of its proposed rate rises (until December).
Then things got a little more muddled late in the year. Donald Trump was elected president, which surprised many…and the market doesn’t like surprises. With his first year of policy actions still somewhat murky, it’s tough to suggest what might happen to mortgage rates during his first year in office. The Fed’s decision to finally raise the Federal Interest Rate during December also suggests that more rises could be in the forecast next year.
Many who were set on pursuing a new home in South Florida during the new year might now be asking themselves: “Is it worth it?”
It’s important to understand two things when anticipating your ability to buy a home: supply and price.
Supply will most likely be the biggest issue for those home shopping in Broward, Palm Beach and Miami-Dade Counties during 2017.
Following the economic crisis of 2008, there were years of low housing demand—potential buyers lost jobs or were simply unable to afford it. This trend bottomed out in 2011, and has been slowly rising ever since. Not surprisingly, last year’s low rates and continued improvement in the jobs market drove demand way up. Even with the promise of higher rates, that strong demand will likely continue into 2017.
Supply and demand of available homes is tracked in terms of “months.” The rule of thumb is that anything above six months-worth of homes makes it a buyer’s market; anything less makes it a seller’s market. Broward County’s inventory of homes is uncomfortably below that mark, at 3.7 months, as of last report.
This will give sellers good reason to foster competitive bidding for their homes.
The good news is that this intense demand won’t impact prices as dramatically as it could. Initial estimates from Trulia suggest that the average home will increase in value by just 3 percent in South Florida during 2017. Average increases to income should cover this.
The problem will be in the aforementioned mortgage rate increases. These are tied directly to Federal Interest rate rises…and analysts are currently projecting three more increases during 2017 (which are three times as many as 2016). This could push rates upward of 5 percent by year’s end. To give you an idea of the difference that makes, consider the lifetime price of the same Broward County home during Summer of 2016, January of 2017 and December of 2017:
Let’s assume the home was $300,000 during Summer, and the owner puts down a 20 percent down payment. Here’s what you would have / will pay:
Things sound bad. Is it unreasonable to buy a home during 2017?
In fact, it might be smarter to look for a home during 2017 instead of holding out. It’s important to remember that rising rates aren’t a random spike, but rather a return to normalcy. Unfortunately, it’s unlikely that we’ll be returning to the rates of 2016 without a shock to the U.S. economy, and we can only guess at the availability of homes in the years to come.
It will be tougher to get a home during 2017 than it was last year, both in terms of supply and price. But there are two key individuals who can help you get into a home. The first is a Realtor, who can help you plan the best possible strategy for bidding on a home, as well as helping you with the negotiating process.
The other is an experienced lender, who can consider your situation and point you toward plans—First-Time Homebuyer Programs, Discount Points, and others—that can help you get the most bang for your buck. Rates may rise, however FHA and other mortgage guidelines may shift to counteract this increase in prices. A lender can help you navigate these changes and identify what kind of mortgage will ultimately save you the most money.
Remember: Rates are almost certainly going to be higher at the end of 2017 than they are now. If you’ve been thinking about purchasing a home, the sooner you can move, the better. Speak with a lender and create a plan to determine your best course of action.