Rising mortgage rates will have a significant impact on the housing market and home affordability in 2017, according to real estate data giant Zillow.
The latest Zillow Home Price Expectations quarterly survey queried more than 100 housing experts and economists about what factors they believed would have the greatest impact on the U.S. housing market this year. More than half of the respondents cited rising interest rates and their impact on housing affordability, according to a Zillow news release. The survey was sponsored by Zillow and conducted by Pulsenomics LLC.
Low inventory and shifting demographics, as millennials enter their prime home-buying years and the housing needs of aging Baby Boomers change, were the next most important factors cited by experts in the survey.
“Rising mortgage rates, inventory shortages and demographic shifts will be the main drivers of the U.S. housing economy this year, especially for first-time buyers who will face tougher competition for entry-level homes and often operate with a tighter budget than move-up buyers,” Zillow Chief Economist Svenja Gudell said in the release. “When you combine higher mortgage rates with increasing home values, mortgage affordability starts to suffer, and buyers will have to spend more and more on their monthly payments.”
While mortgage rates have been historically low for the past several years, rates jumped following the presidential election in November and now hover slightly above 4%, according to the release. The Federal Reserve voted to raise its federal funds rate by .25% in December, and Fed officials have indicated more rate increases may be coming in 2017. Zillow expects the conventional 30-year fixed mortgage rate to rise to about 4.75% by the end of 2017.
Home price appreciation also accelerated at the end of the year, which is affecting affordability for prospective homebuyers, according to the release. Home values rose 6.8% in 2016. The experts surveyed predict home prices will rise continue to rise by 4.6% in 2017, and then slow to 3% annual growth by 2019, the release stated.
“Compared to their outlook in our previous survey just a few months ago, most of our panelists now expect somewhat stronger home value appreciation this year and next, as tight inventory conditions persist,” Pulsenomics founder Terry Loebs said in the release. “However, longer-term, the consensus still calls for decelerating prices, with the most pessimistic quartile of experts continuing to project negative inflation-adjusted returns for U.S. housing beyond 2017. The specter of rising mortgage rates and other affordability hurdles are clearly impacting these home value projections.”
To read more about the Zillow survey, click here.
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