23-Jan-17 – Despite President Trump’s promise to “make America great again,” with the threat of higher mortgage rates on the horizon for 2017, it may take a while for Chicago’s for-sale housing market to fully recover from the Great Recession.

Nationwide, housing is “expected to downshift in 2017 as the post-election economy sets in, driven by a deceleration in home price growth,” reports a new forecast by National Association of Realtors.

The average rate on benchmark 30-year fixed mortgages spiked to 4.3 percent on December 22, following a Federal Reserve Board rate hike. Over the past three weeks, rates have eased a bit, falling back to an average of 4.09 percent on January 19, reported Freddie Mac’s Primary Mortgage Market Survey.

However, 30-year rates are forecast to rise to 4.5 percent and higher this year. NAR chief economist Jonathan Smoke predicted that “two or three more interest rate moves” could happen in 2017.

Higher mortgage rates have an impact on the potential of the buying pool in high-costs areas, Smoke said. Higher interest rates “challenge qualifications from an affordability perspective and have a dampening effect” on demand.

If the Trump administration works toward easing stringent enforcement of the mortgage industry under the Dodd-Frank Act, “that could open up credit opportunities closed off to otherwise qualified buyers,” said Smoke (left).

NAR forecasts the nation’s homeownership rate will stabilize at 63.5 percent after hitting a 50-year low of 62.9 percent in the second quarter of 2016.

Existing and new-home sales are projected to grow 1.9 percent to 5.46 million units in 2017. New-home construction starts are projected to grow 3 percent this year.

“Builders began the year optimistic that a new Congress and administration will help create a better business climate for small businesses, particularly as it relates to streamlining and reforming the regulatory process,” noted Granger MacDonald, (right) chairman of National Association of Home Builders.

Experts say the nation’s housing shortage is especially pronounced in the starter-home segment and this is preventing first-time buyers from entering the market.

Trump nixes plan to cut HUD loan fee

Unfortunately, a plan to reduce the fees home buyers pay on affordable Federal Housing Administration insured home loans was abandoned immediately after President Trump took office.

The United States Department of Housing and Urban Development had planned on January 27 to cut its loan fee to 0.60 percent from 0.85 percent. The fee goes into a fund to pay for future FHA mortgage defaults. The fee reduction would have saved a borrower with a 30-year $200,000 FHA mortgage about $500 a year.

The NAR forecast projects that Baby Boomers and Millennials will power housing demand over the next decade. Millennials are expected to comprise 33 percent of future home buyers, while boomers account for 30 percent of the market.

Meanwhile, the Chicago-area housing market continued to strengthen as 2016 ended, according to a year-end sales analysis by RE/MAX of Northern Illinois.

Home sales in the seven-county metro area totaled 114,569 units in 2016, a 4.5 percent gain over 2015 and the most sold in any year since 2006 when 117,503 units changed hands.

However, sales during the second half of the year weren’t quite as strong, rising only two percent above the 2015 sales total, RE/MAX reported.

The median home sales price for the metro area in 2016 was $225,000, up 6.6 percent over 2015. The pace of sales also increased, with homes sold during 2016 taking an average of 88 days to go under contract after listing, compared to 93 days in 2015, according to information from Midwest Real Estate Data, the regional multiple listing service.