How Will 2016 Real Estate Trends Shape 2017?

2016 has been one heck of a year, and usually not in a good way. With the unexpected result of the US presidential election, many economic forecasters have been left with a great deal of uncertainty as to what we can expect in 2017. Fortunately, 2016 has been a solid year for the housing market, and if current trends continue, 2017 should be great, too. But it’s hard to know for sure.

Let’s take a look at some of the trends we’ve seen in the 2016 housing market and examine what might be in store for the year to come.

Rents have gone up substantially around the nation in 2016, and there is no reason to think that they won’t continue to rise in 2017. While the economy has continued to improve and we’ve seen job growth for 70 straight months, many people are still choosing to rent who could potentially buy. Before the Great Recession, home ownership sat at 70%. Now that figure is closer to 64%. Many potential homeowners are opting for the flexibility of renting, while others prefer to live in city centers where buying a house or condo simply isn’t a feasible option. Still others simply can’t afford homes of their own, especially with home prices on the rise.

As a result, rent prices are going up, and we have every indication that they should continue to go up in 2017. With the high level of uncertainty that the economy currently faces, it’s unlikely that renters will choose next year as the ideal time to start looking for a new home.

As previously mentioned, home prices have also been going up in 2016. It’s hard to predict whether the positive pricing trends of the last few years will continue into 2017, but a few solid factors support that idea. First of all, home inventories have yet to catch up with demand. Builders are constantly working on new homes, but the number of available homes is still incredibly low. Plus, home foreclosures reached a 129-month low in September. This is a strong indicator of a solid economy and a stable housing market. While house flipping is at a six-year high, it isn’t seen as a threat to the current housing market, in large part due to the low number of foreclosed properties available to be flipped. Flippers are investing at every level of the housing market, often utilizing sizeable house flipping loans to flip luxury properties rather than focusing on the lower end.

Another trend that is likely to continue in 2017 is the rise of second-tier cities. Rather than moving to expensive, overcrowded markets like New York, Los Angeles, and San Francisco, many people are choosing to set down roots in smaller cities that feel a little more livable and are a lot less expensive. These cities include Austin, San Antonio, Portland, San Diego, and Nashville. A benefit of focusing on these cities for house flippers is lower upfront investments. Currently, the average flipped house in America is selling for about $189,000. At that level, some flippers make do without any residential rehab loans at all, while others use rehab loans for real estate to leverage their capital into multiple flips at once.

In these cities -- assuming that the economy holds up -- we expect to see a lot more Millennials starting to look for single family homes and condos. While Millennials as a group tend to prefer renting to buying, they are getting to an age where a large portion are expected to start settling down and having children over the next five to ten years. Millennials currently make up the largest segment of the population, so when this group starts looking for nice homes in good school districts, that could have a major impact upon the housing market.