Prices in highly desirable real estate markets such as ours in Silicon Valley are predicted to rise again in 2017, just as we experienced in 2016. However, prices are anticipated to rise to a lesser amount. For example, in San Jose we are expecting a +5% increase this year rather than last year’s +16% increase, and by +5% in San Francisco rather than last year’s +32% increase. Still a healthy market!
Several factors expected to impact the Silicon Valley real estate market include increasing mortgage rates, expectations of tax cuts, and the lowest level of inventory of single family homes in six years. Let’s take a look at each of these factors separately.
In December, 2016, the Fed incrementally raised interest rates to reflect the strength of the economy and the low unemployment rate. It is expected that the Fed will raise those rates again, between two and four times during 2017, if all economic indicators remain fairly stable. The timing of those increasing interest rates will likely affect current owners who are considering refinancing their homes, potential sellers, and potential buyers. The earlier that existing owners refinance their current home, the better, as rates will be comparatively lower during the first part of the year. Potential buyers may accelerate their decisions to buy, again due to comparatively lower rates during the early part of the year. Potential sellers may, on the other hand, choose not to sell worrying about their ability to afford their existing home, let alone a more expensive home at a higher interest rate.
Some forecasters predict that there will be a buying surge at the upper or luxury end of the housing market due to expectations of tax cuts for the wealthy. Other forecasters predict the market will become more skewered towards cash transactions due to both tax cut expectations and increasing interest rates.
The factor of inventory, or rather lack of inventory, is predicted to become more pronounced in 2017. It is anticipated that demand for those fewer homes available may actually surge due to less options on the market, however it will be interesting to see what happens with price appreciation this year as we started seeing some price resistance towards the end of 2016.
Overall, it seems 2017 Silicon Valley’s housing market is becoming more “normalized” to pre-recession prices with a healthy rate of sales and a moderate price growth increase of +3-5%. And, as stated above, timing will become an increasingly important consideration during this new year.