NMP - December 2016 - 84


Will History Repeat Itself in 2017?
s this year comes
to a close, we
reflect on
market-moving
events in the
housing industry
and offer some forwardlooking insights as we
approach the new year. One
unknown is the impact the
newly elected administration
may have on monetary policy,
the housing market and the
mortgage marketplace.
However, we anticipate that
many of the trends we're
seeing at the end of this year
will continue to affect home
lending in 2017.
First, let's take a look at the
landscape of the mortgage
sector over the past year. 2016
kicked off with the Federal

A

DECEMBER 2016 n National Mortgage Professional Magazine n

NationalMortgageProfessional.com

84

Reserve's first rate increase in
nearly 10 years-a quarter of a
percentage point-in December
of 2015 and a projection of four
additional increases on a
quarterly basis over the course
of the year. The Fed quickly
dialed back the four projected
rate increases to two by March
of 2016, and continued to hold
rates at a low level due to jobs
and inflationary data that did
not indicate a strong enough
economic recovery.
It's important to note that
since the housing crisis, these
rates have been held at historic
lows. In turn, homeowners in
2016 have shifted from
adjustable to fixed rates to take
advantage of the opportunity to
guarantee their mortgage terms
while rates are still low.

By John Pataky

All eyes on the Federal
Funds Rate
Since last December, the
economy has been gradually
recovering. As short-term
movements in the federal funds
rate typically affect the long-term
interest rates that mortgage
lenders charge borrowers,
current and prospective
homeowners should keep an eye
on the federal funds rate going
into 2017.
Recently, the combination of
historically low fixed rates with
rising home values has
encouraged homeowners to
leverage the equity they've
gained in their homes through
cash-out refinances. While the
volume of cash-out refinancing is
nowhere near the levels we
observed prior to the housing
crisis, homeowners are
refinancing and taking cash out
of their homes to pay off second
mortgages and consolidate or
pay off debt. According to a
recent report by CoreLogic,
home prices have increased 6.3
percent over the past year.
Hypothetically speaking, a home
valued at $200,000 one year ago
has risen to a current value of
$212,600. Overall, the average
American has doubled their
home equity in the past year,
gaining more than $11,000 in
home value.
Millennials enter the market
With the appreciation in home
prices, how did potential
homebuyers view the rent versus
buy environment in 2016?
According to real estate site
Trulia, homebuying continued to
be the more economical choice
this year, and is anticipated to
remain that way in the
foreseeable future. Based on a
typical monthly mortgage
payment versus median monthly
rent, Trulia found it was 37
percent cheaper to buy than rent
on average this year for
homeowners who plan to stay in
their household for at least seven
years. This was particularly true
in urban areas, as buying was
cheaper than renting in each of

the United States' 100 largest
metro areas. Though this may
appear surprising considering
appreciating home prices, rent
prices have also spiked-as
much as 20 percent in the last
six years-according to research
firm Reis.
The generation still making its
way into the homebuying
movement is Millennial
generation, many of whom have
opted out of homeownership due
to a variety of factors, including
student debt and higher credit
score requirements. However,
analysts encourage the housing
industry to be prepared as this
generation, which is both the
largest demographic and the
most educated according to
HousingWire, moves towards
homebuying in the coming years.
According to a recent Zillow
report, there is already evidence
of this phenomenon, as
Millennials are playing an
increasingly large role in the
housing market, making up more
than half of today's homebuyers.
Therefore, we predict an
increase in housing demand from
this generation is on the horizon,
and mortgage professionals
should make sure their offerings
align with this demographic's
needs going into 2017.
In addition to Millennial
homebuying, another key factor
that could play into the rent/buy
decision next year will be
mortgage rates, as they may
become less attractive,
particularly in comparison to
today's record-lows. However,
according to Trulia's report,
interest rates would have to
increase to more than double
that of current rates to wipe out
the financial advantage of
buying, which is unlikely to
happen anytime soon. As such,
mortgage professionals should
focus more on the impact of
rising housing prices than that of
rising interest rates. Though it is
unlikely that housing prices will
continue to rise at their current
growth rate for much longer, a
significant upward trajectory
could shift dwellers towards
renting in the coming months.
Projected slowdown
in refinancing
So if they aren't projected to


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Table of Contents for the Digital Edition of NMP - December 2016

Contents
NMP - December 2016 - Cover1
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NMP - December 2016 - 1
NMP - December 2016 - Contents
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