The New Year brings with it the feeling of a chance to start fresh, new opportunities, and excitement about what the coming months ahead may bring. Coming off of 2016 which was a tumultuous year to say the least, the sentiments of optimism for 2017 seem stronger than ever.
2016 was a strong year for real estate, and industry experts are looking for another favorable year in 2017. Home prices rose in 2016 and have since recovered from the lows of 2012 that resulted from the collapse of the housing market. For the majority of 2016, mortgage rates were suppressed to historic lows until crossing 4% after the November election. Builders were not building at a fast enough pace to keep up with demand at the lower end of the market while the ultra-luxury segment remained saturated.
With this backdrop of the 2016 market as we enter 2017- the question on many peoples' minds is: "what can we expect for the 2017 market? Is it going to be positive?"
Here are some considerations and thoughts as to why 2017 may be the year to buy real estate, keeping the luxury market in mind.
Rising Rates
We have already seen rates rise from their historic 2016 lows. The sharp rise in mortgage rates, largely corollated to the spike in 10-year Treasury yields, since the election has been dubbed "The Trump Effect". Rates have been hovering around the 4% mark on a 30-year mortgage, and many anticipate this to continue to rise throughout the year and into the future as the Fed has placed expectations on continued rate hikes in 2017 to its Fed Funds rate and the expectation that inflation will increase in 2017.
If you have been considering the purchase of a property with mortgage financing, now may be the time to act on your willingness to purchase and lock in a favorable rate.
Build Wealth
Buying a home and building equity in it is one of the greatest ways to accumulate wealth for yourself, and wealth that can eventually be passed to your children or heirs. This is most profoundly seen for Millennials as they have a long time horizon for their investment, and generally speaking, the value of property increases over the long term. In fact, a self-made millionaire has stated that buying a home is the single most important factor for accumulating wealth.
Millennials are expected to increase their representation in the buyers pool as we enter 2017. If you are in the position to buy (not drowning in student debt, etc.) consider purchasing a property to start accumulating that wealth now instead of flushing money down the toilet each month with rent. Close to saving for your down payment or looking for some ideas of how to get on track? Check out our creative ways to save for a down payment.
Negotiability
Realistic sellers that are looking to get out of their properties for whatever the reason may be are willing to negotiate. This means the cards are in the hands of the buyer and with a keen broker to negotiate for you, deals can be had on great properties. In fact, one published research statistics showed that the average difference between listing price and contract price for the luxury market in 2016 was 6%. For a luxury property, that is a handsome discount!
Less Regulations
The Trump Administration has outlined policy plans that include an array of deregulation in both the financial services and housing sectors. One of the most notable is related to the Dodd-Frank Act, a cumbersome 2,300 page piece of legislation that has largely been critiqued by many. The legislation essentially tied banks' hands after the financial crisis as a means to (hopefully) avoid another by imposing rules regarding what investment banks can hold on their balance sheets and who banks can lend to among other things.
By reducing regulations related to Dodd-Frank, we could see access to credit expand. Will banks be rushing to lend every person a mortgage? Doubtful as they have learned their lessons regarding due diligence, however, expanded credit certainly stands to benefit many as they will hopefully have access to a mortgage for which they would have previously not qualified.
The Wealth Effect
Buyers in the luxury market seem ready to benefit from "The Wealth Effect," or the feeling of increased wealth from various economic factors. Trump's proposed policy, specifically taxes, will benefit wealthy buyers, hypothetically returning more money to their pockets if enacted.
Additionally, financial markets have reached record highs since the elections and the consensus among financial experts seems to be another march higher in 2017 thanks to Trump's proposed infrastructure spending and corporate profits. Increased markets means increased stock portfolio values...have you checked your statement recently?
All of this combined with increased consumer confidence and sentiment leads wealthier buyers to feel even wealthier!
Normalized Pricing
Pricing in the luxury and especially ultra-luxury segments of the market have began to normalize or "cool-off." Sellers can no longer demand the outlandish prices that we saw on some properties in 2014. This has been a harsh reality for some sellers to accept, however, a normal market is certainly a more healthy market for all. Given normalized pricing, buyers have a more realistic picture as to what properties are in their price range and where they can negotiate to score a deal.
Less Building Permits
Have you noticed less cranes dotting the skyline of New York City? The last three years saw a boom in new construction across the city; however, significantly less building permits have been approved recently. There has never been a better selection of new development inventory on the market as there is now, and many developers are offering concessions to lure buyers to their projects given current inventory.
This makes it a great time to be a buyer! You have a vast selection of luxury product in the city from Battery Park to the Upper East Side, offering beautiful finishes and unparalleled amenities. With the pipeline of new development uncertain given building permits, now may be the ideal time to shop!
