This year, 2017, feels HUGE. Whereas the big concern last year was how well our economy could navigate around some rough global waters, this year will be more about how well President Trump will drive straight through them.
In thinking about how our economy will fare in 2017, I realize how “in the weeds” we were this time last year. We were concerned about China’s slowing growth, low oil prices and the Fed’s concern over low consumer confidence and manufacturing output. President Trump’s promises, if carried out, will shake the foundation of any and all of those details we were concerned about last year.
So, this year, all eyes will be on him, Congress and the policies they set in motion.
Immediately after being elected, the stock market jumped in volume, quickly launching the major stock indexes to their highest levels in history. Investors were confident in their understanding of what types of businesses will do well under President Trump. So they took money from safe-haven investments like bonds and mortgage-backed securities and put that money into specific stocks. This drove mortgage interest rates up by just under a full 1 percent (when bonds are bought in low volumes, mortgage rates tend to rise). The average 30-year fixed rate on a conventional mortgage started the year at about 4.25 percent, according to Mortgage News Daily.
It is always difficult to predict with accuracy how mortgage interest rates will move. But this year, investors seem confident in betting on the stock market. And the Fed raised its short-term interest rate last December by about 0.25 percent - just like it did in 2015. But what’s different than in 2015 is that Fed officials have signaled several more rate hikes throughout the year. A rise in that rate will push mortgage interest rates up further. If the stock market continues to rise, and the Fed continues to raise its rate, it is very easy to imagine how mortgage interest rates could jump to near or over 5 percent by the end of the year. It is hard to imagine rates staying the same or dropping.
Having such low mortgage interest rates is a symptom of a sluggish economy. So in some ways, rising rates is a welcome sign. Back in 2008 was the first time in recorded history that rates dropped below 5 percent. So as we head into 2017, it is unfortunately for homebuyers a welcome sign to see rates going up.
Consumer confidence is high, and for the first time in a long time, small business confidence is higher than it has been since 2004, according to the monthly National Federation of Independent Business Index of Small Business Optimism.
Despite any increase in interest rates, we could see a housing market on the move this year. The last five years have seen a steady decline in available housing inventory in the Atlanta market. A major reason for this is that the metro area’s economy is on fire, and people have been moving to the area faster than homebuilders could build homes. A healthy housing economy typically has around six months of inventory – meaning if no new houses came on the market, there would be no houses to sell in six months. Last year, inventory dropped to 3.5 percent. And when inventory is low, home prices rise at an unhealthy rate. In some parts of the metro Atlanta area, home values jumped between 5 percent and 10 percent from 2015 to 2016.
The good news is that inventory seems to have bottomed out near that 3.5-month mark as a slew of new homes are finalizing construction. From January to October, Metro Atlanta ranked third in the country in the number of housing permits issued. Much of that inventory should be flooding the market early this year.
The fourth quarter of last year caught fire. According to an article published in the Atlanta Business Chronicle, 32 percent more homes were sold in November 2016 than November 2015.
Another interesting fact I heard is that just over 40 percent of all millennials currently live with their parents. That is a huge market waiting to get into the game. If confidence keeps strong and inventory keeps coming in, we could see the most active housing market since before the Great Recession in 2008.