We are more than halfway through the first quarter of 2017, and we are still holding our breath to see how President Trump’s proposed policies will impact the U.S. economy. There is much to feel optimistic about, especially a renewed commitment to stimulate the economy through tax reform, infrastructure investment and regulatory relief. But these policies will take some time to enact and show results. In the meantime, it’s smart to stay alert and vigilant – much about 2017 feels like uncharted waters.

Here are some of the key indicators and trends we at PrimeLending are monitoring closely:

  • Experts predict GDP (Gross Domestic Product) will continue a modest increase in 2017. Strengthening consumer spending, spurred by steady wage and employment gains and a rallying stock market, is driving the economy so far this year. Retail Sales for January rose .4% on stronger sales at gas stations, restaurants, electronic stores and appliance dealers. Most experts expect U.S. growth to hover around the 2% range for the year.
  • The U.S. Employment Report is the most important piece of economic data investors, traders, and the Federal Reserve watch on a monthly basis. January results were solid, with 227,000 added jobs and a 2.5% wage increase over 2016. For the year, experts predict the unemployment rate will remain at or near historic lows – settling in around 4.5% (still far below 5.8% historic average).
  • Despite the potential for volatility, the consensus is that a bullish market will continue with an average 2017 S&P 500 forecast of 2,356, representing a modest 4% rise from 2016. Though how effectively the administration can deliver on pro-growth pledges of lower corporate taxes and relaxed regulations will have a major impact on what the market will actually do.
  • Short-term rates are on the rise and likely to continue curving up, based on the Federal Reserve’s December rate hike and the potential for 2-3 more hikes in 2017.
  • Mortgage rates historically follow the movement trend of the bond market’s 10-year Treasury note. We anticipate the yield on the 10-year note to land above the current 2.5% by year’s end, somewhere closer to 2.67%. Despite so many economic variables hanging in limbo in the new year, we see an overall upward trend in these rates for the near term.

So what do these forecasted indicators mean for the housing market?

  • We expect some 2016 trends to continue. Low existing home turnover, modest new home construction and tight inventories will continue to drive up home prices – but at a slower rate. In particular, entry-level buyers will struggle to find affordable homes. But there are indications that housing supply, especially new home starts, will begin to improve with an estimated increase as high as 6%.
  • Millennials will begin to have a greater impact on the market as they make up a growing proportion of homebuyers. At the same time, the repeal of financial regulations may lead to more flexible credit availability, giving a wider-range of potential borrowers the opportunity to buy a home.
  • Mortgage interest rates have crept up and are expected to stay within the 4.25-4.75% range for a thirty-year fixed-rate. While this is an increase from 2016, these rates are still considered low by historic standards.
  • There are an increasing number of loan programs available for borrowers with low-to-moderate income or FICO scores below 700. FHA, VA and USDA programs in particular offer a path to homeownership to help turn renters into purchasers.
  • As rates tick upward, there will be fewer refinance opportunities to realize a shorter term or lower payments. However, cash-out refinancing remains an attractive opportunity for many borrowers looking to convert equity into cash and turn debt into a deduction.

The bottom line, we are cautiously optimistic about the housing market for the year ahead and have forecasted for a slight increase in home purchases for 2017. But the market is lively, and subject to volatile changes. We work closely with our loan experts in the field to keep them informed of current conditions, and even ahead of the curve when we can.

If you are contemplating buying or refinancing a home in 2017, a PrimeLending loan officer can help you stay up-to-date on the latest economic trends and understand how they may impact interest rates and the housing market in your area.

This article is for information purposes only and it is not, and should not be regarded as, financial advice or as a recommendation regarding any particular course of action. Opinions expressed herein are as of the date first published and are subject to change without notice.

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