Mortgage Rates Impact on 2017 Home Values

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There is no doubt that historically low mortgage interest rates were a major impetus to housing recovery over the last several years. However, many industry experts are showing concern about the possible effect that the rising rates will have moving forward.

The Mortgage Bankers Association, Fannie Mae, Freddie Mac and the National Association of Realtors are all projecting that mortgage interest rates will move upward in 2017. Increasing interest rates will definitely impact purchasers and may stifle demand.

In a recent study of industry experts, “rising mortgage interest rates, and their impact on mortgage affordability” was named by 56% as the force they think will have the most significant impact on U.S. housing in 2017. If rising rates slow demand for housing, home values will be impacted.

To this point, Pulsenomics, recently surveyed a panel of over 100 economists, investment strategists, and housing market analysts, asking the question “In your opinion, at what level will the 30-year fixed rate mortgage rate significantly slow home value appreciation?” The survey revealed the following:

Mortgage Rates Impact on 2017 Home Values | MyKCM

Bottom Line

Most experts believe that rates would need to hit 5% or above to have an impact on home prices.

How Long Do Most Families Stay in Their Home?

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The National Association of Realtors (NAR) keeps historical data on many aspects of homeownership. One of the data points that has changed dramatically is the median tenure of a family in a home. As the graph below shows, for over twenty years (1985-2008), the median tenure averaged exactly six years. However, since 2008, that average is almost nine years – an increase of almost 50%.

How Long Do Most Families Stay in Their Home? | MyKCM

Why the dramatic increase?

The reasons for this change are plentiful!

The fall in home prices during the housing crisis left many homeowners in a negative equity situation (where their home was worth less than the mortgage on the property). Also, the uncertainty of the economy made some homeowners much more fiscally conservative about making a move.

With home prices rising dramatically over the last several years, 93.7% of homes with a mortgage are now in a positive equity situation with 79.1% of them having at least 20% equity, according to CoreLogic.

With the economy coming back and wages starting to increase, many homeowners are in a much better financial situation than they were just a few short years ago.

One other reason for the increase was brought to light during a recent presentation by Lawrence Yun, the Chief Economist of NAR, at the Realtor’s Summit in San Diego, CA. Yun pointed to the fact that historically, young homeowners who were either looking for more space to accommodate their growing family or looking for a better school district were more likely to move more often (every 5 years). The homeownership rate among young families, however, has still not caught up to previous generations resulting in the jump we have seen in median tenure!

What does this mean for housing?

Many believe that a large portion of homeowners are not in a house that is best for their current family circumstances. They could be baby boomers living in an empty, four-bedroom colonial, or a millennial couple planning to start a family that currently lives in a one-bedroom condo.

These homeowners are ready to make a move. Since the lack of housing inventory is a major challenge in the current housing market, this could be great news.

Are You 1 of the 59 Million Planning to Buy This Year?

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According to a survey conducted by Bankrate.com, one in four Americans are considering buying a home this year. If this statistic proves to be true, that means that 59 million people will be looking to enter the housing market in 2017.

The survey also revealed 3 key takeaways:

  1. Those most likely to buy are ‘Older Millennials’ (ages 27-36) or ‘Generation X’ (ages 37-52)
  2. Minorities, particularly African-Americans, were twice as likely to respond that they were considering purchasing a home this year than white respondents.
  3. Many potential buyers believe they need to put 20% down and need to have perfect credit to own and are unaware of programs that would allow them to buy now.

Holden Lewis, a mortgage analyst for Bankrate.com, pointed to one big reason why many Americans are starting to consider homeownership:

“Having kids and raising a family is a primary reason why Americans take the leap into homeownership—many consider it a key component of the American dream.”

Bottom Line

If buying a home is a part of your dream for 2017, let’s get together to determine if you are able to.

Lighting

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I am constantly amazed by the imagination and beauty of lighting in today’s world. My mother was an architect and I grew up with a back porch that was illuminated by lights recessed into the ceilings and disguised as stars. A memory so lovely that I still love the night stars.

My mom would approve.