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New year should bring continued strength in U.S. housing market

DEAR MR. MYERS: Several years of price increases have given us a lot of equity in our current home, so now we’re thinking of selling it and using part of the profits to buy a bigger house for our growing family. However, we don’t want to buy a new one if the bottom is going to drop out of the market in 2017. Will it?

ANSWER: No. Most economists and real estate professionals agree that the nation’s housing market will remain steady next year as the economy continues its slow expansion and a growing number of millennials reach their prime home-buying age.

With the arrival of 2017 just days away, I’m devoting this entire column to answering some common questions about what experts say likely will happen in the year ahead.

Q: Will sales remain strong?

A: Yes. Statistics provided by the National Association of Realtors suggest that home resales this year will total 5.36 million, the best since 2006. Nearly all economists say that sales next year will roughly match the 2016 level.

Some are even more optimistic. Lawrence Yun, the Realtors’ chief economist, believes that sales will total about 5.46 million in 2017 – a 2 percent increase from 2016. It’s worth noting that Yun’s annual forecasts have been remarkably accurate over the past several years.

Q: Are prices going to keep climbing?

A: They should. Nationwide, home prices today are up an average of 4 percent from a year ago: Yun and many other experts forecast a similar gain in 2017.

Q: Why are those realty experts so bullish?

A: There are several reasons. The economy is expected to slowly keep expanding, which creates jobs (and the confidence) needed to turn renters into buyers and for existing owners to “trade-up” into bigger homes.

Equally important, the rate of household formation is growing sharply. That means that more people are starting to live together, whether they’re married or not. Two-income households can more easily afford to buy a house than someone who lives alone, which helps to boost sales.

And then there are the “millennials,” the roughly 75 million Americans who were born in the last two decades of the 20th century. A growing number of them are just now entering the prime first-time-buyers age bracket of the late 20s and early 30s, Yun notes. That bodes well for the sale of lower-priced homes, which in turn boosts sales and values of higher-cost houses.

Q: Are mortgage rates going to stay low in 2017?

A: By historical standards, yes, which will add even more fuel to next year’s housing market. But rates on 30-year mortgages started rising steadily again several weeks ago, and the days of the ultra-low 3.25-percent rates we saw earlier this year are now just a distant memory.

A recent survey of six leading economists conducted by TheMortgageReports.com found that, on average, the experts predict that 30-year rates will hover in the 4 percent range over the next 12 months. Yun, the Realtors’ economist, is more bearish: He thinks that rates will rise to 4.5 percent by the end of next year.

If Yun is right, a 4.5 percent rate would require a monthly payment of $1,013 for principal and interest on a 30-year loan for $200,000. That’s $47 more than a buyer would pay on a $200,000 mortgage at today’s current rate of about 4.1 percent.

Q: How will a Donald Trump presidency affect the country’s housing market?

A: It’s hard to say. Neither Trump nor Hillary Clinton made housing policy a centerpiece of their respective campaigns, and Trump hasn’t yet presented a detailed plan to tackle the market’s affordability problems and other issues.

If the president-elect’s ambitious $550 billion plan to modernize our nation’s deteriorating transportation and infrastructure systems is approved by Congress, it could create millions of good-paying jobs and further boost home sales and prices. But Trump’s controversial immigration stance may discourage foreign investment in U.S. real estate and dissuade some people from moving here – legally or not – which could limit price growth and sales alike.

Trump’s constant complaints that the government over-regulates businesses could help homebuilders and boost new construction if he’s successful in cutting bureaucratic red tape. In August, he told a gathering of the National Association of Home Builders that those regulations add as much as 25 percent to the cost of a new home. “I think we should get that down to 2 percent,” he said.

David W. Myers’ column is distributed by Cowles Syndicate Inc.

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