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Predicting the Path of Single-Family Home Prices

In the first full week after the election, mortgage rates skyrocketed by nearly 40 basis points up near 4 percent, their largest weekly increase in more than three years, according to Freddie Mac.

“The recent rise in mortgage rates is largely attributed to Wall Street optimism regarding Trump's proposals for increased infrastructure spending and tax cuts,” Redfin Chief Economist Nela Richardson said. “In short, Wall Street is now anticipating higher economic growth and inflation in 2017.”

Will higher economic growth and inflation mean greater home price appreciation? Now that mortgage rates have spiked following the presidential election, will single-family home prices follow suit? The latest home price data from CoreLogic, released a week before the election, indicated that home prices increased by 6.3 percent in September and are expected to rise by another 5.2 percent by September 2017. What will happen to home prices now?

National Association of Home Builders Chief Economist Robert Dietz said that NAHB's forecast calls for home price gains to continue and that prices will moderate somewhat as mortgage interest rate rise.

“Our analysis indicates that prices will continue to rise as inventories of new and existing homes remain tight,” Dietz said. “And while single-family construction will continue to expand in 2017, the rate at which the industry can grow is limited by the amount of workers and access to building lots for builders to meet rising housing demand.”

Dietz continued, “As long as single-family production remains below historical norms, as it will for the next few years, home prices will continue to rise.”

Realtor.com Chief Economist Jonathan Smoke conducted an analysis of the previous five presidential elections and discovered that none of the elections resulted in a significant change to home prices or sales except in the immediate Capitol Hill area, according to the Washington Post.

“Roughly six to nine months following the election, there were abnormally stronger sales (around Capitol Hill) relative to the prior year,” Smoke said. “If Trump is true to his claim to bring in outsiders and build a government with more people who haven’t been inside the Beltway, then you could believe that there are going to be more transactions than normal as those people seek to move in.”

Potentially, the Trump Administration’s economic plans could have long-term effects on the housing market as a whole, according to Richardson.

“We are awaiting specific details on a gamut of housing related policy issues from GSE reform to immigration policy,” she said. “To the extent that the cumulative effect of Trump's economic plans is to increase affordable housing supply and expand mortgage credit, this would be a boon to the housing market in general and to first-time buyers in particular.”

Mortgage rates are not the only factor that buyers consider when buying a home, however.

“We expect rates will be higher in 2017 than the rock bottom rates of 2016,” Richardson said. “However, we don't expect that the rise in rates will be high enough to significantly affect consumers’ plans to buy or sell. There are a host of reasons why a family chooses to purchase a home. Rates are just one of them. In that sense, it's the economic basics of everyday life—job relocation, family changes, lifestyle preferences, desire for more highly ranked schools and shorter commutes—that continue to be the key drivers of a family's decision to buy or sell, regardless of who resides in the White House.”

About Author: Seth Welborn

Seth Welborn is a Harding University graduate with a degree in English and a minor in writing. He is a contributing writer for MReport. An East Texas Native, he has studied abroad in Athens, Greece and works part-time as a photographer.

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