While experts are split as whether the Federal Reserve will push US base rates higher in the short to medium-term there seems to be a general consensus that US real estate prices will move ahead in 2017. It is easy to forget that despite US base rates having bounced off the historic lows of recent times, finance costs are extremely low compared to “traditional markets”. So, what does 2017 hold for the US real estate market?
US real estate price performance
Andres Carbacho-Burgos, an economist at Moody’s Analytics, has gone on record to suggest that US real estate prices will rise on average by around 4% in 2017. This forecast has been backed up by other experts who see a similar performance during the next 12 months – which bodes well. The only issue seems to be whether markets such as New York, Los Angeles and Austin, Texas, which performed well during 2016, will see reduced demand over the next 12 months. In what could be a catch-up period could we see prices in these prominent markets stagnate or dip in the short-term?
Those who follow the US real estate market will be well aware that mortgage rates have been ticking higher over the last few months in anticipation of base rate rises. At this moment in time nobody really knows what Donald Trump has in store for the US economy but we do know he is an expert in the field of real estate.
Wage growth
Since the 2008 US financial crisis, which preceded the worldwide economic collapse, there has been limited wage growth. However, interestingly there appears to be more demand in the US employment market which has seen wage growth tick-up for the first time for some years. It is nothing spectacular to write home about but this could be a long-term change in the wage growth trend thereby increasing the spending power of would be real estate investors.
Again, there is some debate as to how Donald Trump will handle the US economy in the short to medium term therefore short-term forecasts for economic performance are difficult. However, US unemployment recently fell to a decade low of 4.6% which does give cause for hope. Obviously, if the US economy continues to move ahead, at whatever speed, this should increase demand for US real estate.
Limited inventory
A lack of affordable/suitable housing across the US has also had a significant impact upon price performance over the last few years. As more buyers are expected to join the real estate market over the next 12 months, with minimal or any improvement in inventory, it is not difficult to see why some experts expect prices to rise. This is an issue which the UK, as well as other markets around the world, is experiencing at the moment. It can give a false impression in the short term but this will balance out once inventory finally does increase but hopefully demand will continue to rise.
Conclusion
On the whole 2017 could see a rise in US mortgage costs, albeit relatively small in the wider picture, improving demand for property, limited inventory and an economy which is at least moving forward. So, forecasts for a general 4% increase in US real estate prices over the next 12 months are encouraging but there are many other factors which could come into play, casting both a positive and a less positive light on the immediate future.