Economic indicators are used regularly to make predictions about future developments. Following those, it would logical to say that the housing market in Orange County will see its fifth year of increases, which is significant for those who are interested in the income property market. However, 2017 is the year of the wildcard, in the form of Donald Trump. There are very positive trends, but because it is not clear what the Trump policies are going to be, it is hard to make an accurate prediction. If you invest in income properties, then the developments, or possible developments, are very important to keep abreast of. Financial experts have come up with the following six probable developments.
1. A Rise in House Prices
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They project a 2% home price rise in 2017, which would be the 54th consecutive month. Highest recorded prices were in May and June, which was due to new homes being built, and this increased the overall median price. Projected price rises vary depending on who makes the projections, but they range from 2% to 6%. This could potentially lead to a lower return on investment for income properties.
2. More Home Sales
According to the Chapman forecast, home sales will continue to increase due to the continuation of the economic recovery.
California home prices will continue falling this year and into next, but there’s an upside in that it will allow more people to buy homes.
While they forecast a drop in home prices, this is for the state of California as a whole, not for Orange County. Home sales are predicted to be up across the board. In October 2016, 31,641 properties in Orange County were sold, a 2.3% rise from 2015. Many of these properties were income properties, because there is often a significant rise in house prices in the county. While an increase, this is still lower than the 29 year average.
3. Home Builders Will See an Increase in Work
It is believed that, for the seventh year in a row, there will be a rise in new construction. That this should also increase the number of available construction jobs, thereby further improving the economy.
4. There Will Be a Rise in Mortgage Rates
This is an important factor for those looking at income properties, as they will have higher monthly expenses. The forecast has been revised by California Realtors, who initially estimated a 4% interest rate, but now believe this to be between 4.5% and 5%.
5. There Will Be a Drop in Affordability
It is estimated that the median family income of the average family in Orange County will only cover 60% of what is needed to purchase the median home. This is a particular issue of concern, and one that can affect both residential and commercial property buyers and investors.
Two other reports on Thursday showed that housing affordability could become an even bigger issue in 2017. The Home Price Index from the Federal Housing Finance Agency showed that year-over-year, home prices rose by 6.2% in the third quarter, a record high. And home values rose 6.5% in the year through November, the fastest pace since 2006, according to Zillow.
This could make income properties more interesting, as it would suggest a greater demand for rentals.
6. Rent Hikes Will Drop
This is of particular concern for property investors, including those who invest in family units. With rising interest rates and lower affordability, the fact that there will likely only be 2.7% increase in rent in 2017 may lead to a significant cut in their overall income.