Four economists weigh in on what the next year has in store for each group.
by Amber Taufen
- Next year will likely remain a seller’s market in most markets, but buyers might have their day in 2018 or 2019.
- Future buyers will be “less white and a little younger.”
In some years and some markets, the answer is obvious — in 2016, Denver was a seller’s market, and San Francisco’s been one for quite a stretch.
Here’s what four economists had to say about whether 2017 is leaning toward buyers or sellers.
The consensus is?
Most economists we talked to said that overall, they thought 2017 was going to continue to be a strong market for sellers — for now.
“While I expect inventory levels to rise in 2017, it will likely remain a seller’s market,” said Matthew Gardner, chief economist at Windermere. “New construction will pick up steam in 2017, but not to levels that will provide sufficient support to a stretched housing market. Sellers will likely find that it will take a little longer to sell, but demand will still outstrip supply on the back of a job market that continues to tighten.”
Svenja Gudell, chief economist at Zillow, opined that “2017 is probably going to skew more toward the seller’s market — most markets will skew more toward seller’s markets, and even in the Midwest there are probably more seller’s markets than buyer’s markets compared to their own history.”
Geography does play a role, however, said Jonathan Smoke, chief economist at realtor.com.
“Ultimately, I do think it depends on where you are in the country — and not even at a market level,” Smoke said. “We’re seeing some clear patterns emerge within markets — one might be slowing down and cooling off where another part is really heating up. Real estate is so local that I would argue that a neighborhood view is really where you can see the differences and disparities and changes that are occurring around the country.”
Smoke noted that first-time buyers have been most successful in the Midwest this year, whereas markets in the West have seen the most significant price appreciation, making it difficult for first-time buyers to find success.
“We tend to have markets that are either above average in price expectation or sales expectation, and there aren’t many markets that have above-average expectations in both — supply constraint is driving the price movement in the strongest price markets, seller’s markets, but the buyer’s markets where buyers are getting a really affordable home, as a result, those markets are seeing a greater growth in sales,” Smoke explained.
“Either one is good for real estate,” he concluded.
Will we see a shift?
Gudell said that Zillow had just asked a panel of experts — more than 100 economists — “what they thought was going to happen to the tradeoff between buyers versus sellers.”
She said that among the economists surveyed, the most popular belief was that in 2018 or 2019, the bulk of markets will begin to shift from seller’s markets to buyer’s markets.
“In some markets, it’ll start to turn already in 2017, where demand isn’t quite so high and you get a little more inventory in and you have buyers better able to negotiate,” Gudell added.
What does the future buyer look like?
Mark Fleming, chief economist at First American, said that, “assuming an environment with modestly and predictably rising mortgage rates, it becomes a first-time homebuyer purchase-oriented marketplace.
“The question as a real estate agent is, how do you find and market to that first-time homebuyer?” asked Fleming. “Because that first-time homebuyer is going to be a young, technologically savvy millennial — and even more importantly, ethnically diverse. The demand for first-time housing is going to come from a different kind of individual than we’ve traditionally seen: Young, diverse, technologically savvy and much more likely to be college-educated.”
“The homeownership rate will grow, and they’ll be less white and a little younger,” said Gudell.
“Unfortunately, I think all of us will be spending more time in the car as more people have to look for more housing outside the city center as homes become much more expensive in the urban area,” she added. “During the recovery, it’s really picked up and the urban centers have appreciated much faster than the outerlying areas.”
“The potential is there for the market to have the most first-time buyers — certainly on an absolute volume basis, but also on a shared transactions perspective,” said Smoke.
“For the industry, this is the biggest shift we need to be able to contend with because it likely means elongated length of time that people are spending in that journey, especially the first-time buyer, but it potentially also means higher cancellation rates and lower conversion rates. You’re going to have more challenges with people contending with needing to qualify for and buy a home in the environment we’re in now than in the environment we were in the last two years.
“Highly qualified pent-up demand has been driving the market — now, it’s more organic activity at a time when interest rates are on the move-up,” he added. “The potential is there for an even bigger year than we’re forecasting, but it comes with challenges and that’s why we’re expecting only moderate growth instead of huge growth.”
“The thing about housing is that everybody needs it and you can’t outsource it,” said Fleming.