I predict we will see a tempering in the real estate market for several reasons, led by the most recent interest rate hikes after Donald Trump’s election win. Despite the interest rate hikes, there are still opportunities for buyers and sellers. The following are some trends we should expect to see in the real estate market in 2017:

Price Correction. As interest rates creep up, buyers will retreat. Some homeowners will see significant increases in their payments and may be forced to sell. In many parts of California where wages cannot keep up with fast-rising home prices, some buyers are looking for deals outside of the city. In overheated markets, like here in Southern California, we are bound to see prices correct themselves.

Lower Housing Inventory. One of the biggest stories in 2016 was low inventory. It will take time for new construction to catch up with the demand for new housing. Home refinancing is forecasted to go down significantly in 2017 due to homeowners staying put for at least a few years after they refinance. For sellers who have a desirable home at the right price, they can do very well with less competition in 2017.

Higher Housing Demand from Millennials. Many experts didn’t know if Millennials would embrace home ownership or remain long term renters given their mobile lifestyle. Millennials do have a strong desire to own a home, and they are planning to spend big.  Millennials are earning higher wages, and more are moving to urban areas where home prices are higher. These are all positive trends for the housing market. Affordability is the top concern, with a majority of Millennials not confident that they can afford a down payment.

Boomerang Homebuyers. Nine years ago, at the height of the housing crisis, millions of Americans filed for foreclosure or bankruptcy and watched their credit get crushed. After the seven-year credit black-mark period, it is estimated that up to three million former homeowners with delinquent payment history could return to the market in 2017 with better credit, eligible for a new mortgage. These potential homebuyers will be cautious, but likely to explore homeownership once again.

Trump Era. There is no way to offer housing predictions for 2017 without addressing the newly elected President and what impact the elephant in the room will have on the real estate market. Equity investors sent the market higher as they expected increased defense and infrastructure spending, and a pro-bank administration, which should be good for housing. But, the election did trigger a sell-off in the bond markets, pushing mortgage rates higher past the 4% for a 30-year fixed mortgage. The focus will shift from refi’s to new purchase homes.

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