The Future of Home Prices in 2017 & 2018
In September 2016, average home prices in the US climbed up to just above the last record high set in July 2006 right before the worst period for residential real estate since the Great Depression. It took a decade to for this recovery to come to fruition, and different regions bounced back at different paces. For example, both East and West Coasts struggled less than the Midwest. However, the new numbers provided by S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index is fanning the flames of optimism for people in the industry, sparking hopes of sustainable expansion and a more healthy housing market overall in the near future.
What does this mean in 2017 for the regular homeowner? Chicago homeowners, in particular, may be frustrated by the fact that home prices in the area are climbing less than 2%, a rate that’s about half the national average of 3.9%, according to the National Association of Realtors. That’s on top of the fact that although 2016 saw the housing market return to its pre-crash health nationally, projected values of existing homes in Chicago were still way below where they were in 2006; again according to the S&P CoreLogic Case-Shiller’s index.
As for those still paying off mortgage, it’s a mixed blessing; home values may go up, but that’s often not in a vacuum. Some neighborhoods will see a trend of appreciation in the near future; mortgage interest rates are predicted to rise up to 4.5% in the next year. One can only hope that housing market health improves on both fronts. Otherwise, that’s not good for the small percentage of Chicago homeowners whose mortgage payments may or have already outstripped what their homes are worth.
Considering the 2017 numbers and upcoming 2018 trends, is it better to buy or to rent? It may be tempting to think of renting as the only option because of rising home prices, but the rental market is not so accommodating, either. Vacancy rates are very low–this dip in numbers hasn’t been seen since way before the housing market crash–which means that rent is very high. Related to this is an enlightening statistic from the National Association of Realtors: first-time home buyers accounted for about 35% of 2016 home sales. It makes sense; while potential home buyers do have to contend with a limited pool of choices, as moderately-priced houses sell quickly and often way above asking price due to competition, it’s still the better choice in the long run. Plus, Chicago locals actually have an advantage here. Due to the lag in housing market recovery, home buyers in this area may find it easier to find homes in their price range.
The advantages of buying a home in these troubled times are far more stable than most people realize. It’s not the 100% ideal moment to sink your money into a huge purchase, sure; but the housing market is already past the worse–although just barely. This means that home prices, on average, will either improve slowly or remain reasonably steady; because the industry still has to figure out how to fix the housing shortage, brought about by less builders returning after the crash and less entry level homes being built because of a focus in the past years on higher end and luxury homes. Also: As the incidence of distressed sales drop, investor purchases drop, too–which means less competition for first-time buyers as the market improves.
In conclusion: It will probably cost more to rent now and buy later than it will to buy now. Even if you’re still living rent-free and just thinking of buying a house, the prices will only go up higher and higher the longer you wait. Mortgage rates are on the rise, too; but on a gentle curve.
Current interest rates are holding, but again, will rise little by little. The future of home prices in 2017 and 2018 is looking bright, and potential buyers should think about turning their homeowner dreams into a reality sooner rather than later.