Home prices in the United States increased by 0.9% in the final quarter of 2016 and were up 5.8% year on year, but growth is expected to be slower in 2017, latest index suggests.
The data from real estate firm Clear Capital also shows that distressed saturation has fallen another 0.3% bringing the national average to 12.5%, the lowest level since before the market crash in 2007.
The report also points out that average price growth during 2016 was far more robust than originally projected, partially due to the stronger than anticipated growth in some key markets in the West and South, particularly Seattle, Portland, Sacramento, and Orlando.
However, looking ahead to the rest of 2017, the country’s housing market landscape still appears to be moderating substantially in the face of additional interest rate increases and possible far reaching policy changes.
Nationwide home prices are predicted to increase by 2.4% over the coming year, significantly slower than the observed growth from 2016 and regionally the South is forecast to have be the top performing market with annual growth of around 3.5%, followed by the Mid-West at 3.4%.
The report warns that some markets in the West are turning negative and growth in this region is predicted to slow substantially over the coming year with prices predicted to increase only around 1% during 2017.
The Dallas-Fort Worth metro was the second fastest growing major metro market in the nation during 2016 with annual growth topping 13% and is forecasted to be 2017’s top performer with an estimated 11% growth over the next year.
Other top forecasted metros include Denver with a predicted 7.3% annual growth during 2017, Nashville at 7.2%, Milwaukee at 7.1%, and Jacksonville at 6.6%.
Clear Capital says that affordability will be a top concern during 2017, particularly in the West, where rapid price growth during the housing recovery has pushed prices out of the affordable range for most buyers.
Near the bottom of the top forecasted performers list is San Jose, which reported 0.3% quarterly fall and prices are predicted to virtually stand still over the course of 2017. A similar forecast is predicted for another formerly top performing California market, Riverside, which forecasted to actually turn negative by the end of 2017.
‘Affordability will be the name of the game over the course of 2017, as the past few years of relatively impressive price growth have pushed home prices closer to the peak levels of 2006, with several markets reaching above and beyond to all-time highs,’ said Alex Villacorta, vice president of research and analytics at Clear Capital.
‘The national housing market will continue to grow, albeit markedly slower than in past years, with national home prices moderately increasing to the tune of 2.4%. However, western growth will be greatly limited due to a widespread lack of affordability in almost all of the major markets in the region, a key reason for its tempered growth over the course of 2016,’ he explained.
‘Contrastingly, the traditionally lower priced and more affordable regions of the South and Midwest will set the pace for growth over the next year, while the luxury markets of the Northeast will again struggle to make impressive gains,’ he pointed out.
‘In combination with affordability concerns already plaguing demand in some markets, the potential for additional interest rate increases over the coming year, as well as any potential market shake-ups due to the new Presidential administration, could further jeopardise the housing market’s now moderating recovery. For now, our models are predicting softer growth for 2017,’ he added.
