2017 Housing Forecast: Affordability benefits South, Midwest while Western growth slows

National quarterly home price growth remains at 0.9%, while annual price growth has risen slightly to 5.8% -- an uptick of 0.2% since last month. As prices across the nation continue to creep upward even in the dead of winter, another key housing industry health metric is also indicating improving market conditions; nationwide, distressed saturation has fallen another 0.3% since just last month, bringing the national average to 12.5% -- the lowest level since before the market crash. While our January 2016 forecast predicted a much more conservative growth year with national home prices increasing around 3%, average price growth during 2016 was far more robust than originally projected, partially due to the stronger than anticipated growth in some key markets in the West and South -- particularly Seattle, Portland, Sacramento, and Orlando. For 2017, the country's housing market landscape still appears to be moderating substantially in the face of additional interest rate increases and possible far-reaching policy changes; national home prices are predicted to increase by 2.4% over the coming year, significantly slower than the observed growth from 2016. Regionally, the South, Midwest, and West all continue to hover tightly around the 1.0% quarter-over-quarter growth mark, while the Northeast holds steady at 0.5% QoQ growth. However, the regional forecast is predicting an end to the dominating growth pattern of the West of recent years, where year-over-year growth once crested over 17% in 2013. Instead, our forecast is predicting that the South will be the top performing region during 2017 with an estimated 3.5% annual growth, with the Midwest close behind at an estimated 3.4% annual growth. As distressed saturation continues to decrease -- and with it, affordability -- some markets in the West are turning negative; thus, growth in the West is predicted to greatly slow over the coming year, as prices are predicted to increase only around 1% during 2017. The Dallas-Fort Worth MSA was the second fastest growing major metro market in the nation during 2016 -- with annual growth topping 13% -- and is forecasted to be 2017's top performer with an estimated 11% growth over the next year. Other top forecasted metros include Denver with a predicted 7.3% annual growth during 2017, Nashville at 7.2%, Milwaukee at 7.1%, and Jacksonville at 6.6%. Affordability will be a top concern during 2017, particularly in the West, where rapid price growth during the housing recovery has pushed prices out of the affordable range for most buyers. Near the bottom of the top forecasted performers list is San Jose, which reported -0.3% quarterly price growth last month, where prices are predicted to virtually stand still over the course of 2017. A similar forecast is predicted for another formerly top performing California market -- Riverside, CA is forecasted to actually turn negative by the end of 2017. "Affordability will be the name of the game over the course of 2017, as the past few years of relatively impressive price growth have pushed home prices closer to the peak levels of 2006, with several markets reaching above and beyond to all time highs," states Alex Villacorta, Ph.D., Vice President of Research and Analytics at Clear Capital. "The national housing market will continue to grow, albeit markedly slower than in past years, with national home prices moderately increasing to the tune of 2.4%. However, western growth will be greatly limited due to a widespread lack of affordability in almost all of the major markets in the region, a key reason for its tempered growth over the course of 2016. Contrastingly, the traditionally lower priced and more affordable regions of the South and Midwest will set the pace for growth over the next year, while the luxury markets of the Northeast will again struggle to make impressive gains. In combination with affordability concerns already plaguing demand in some markets, the potential for additional interest rate increases over the coming year, as well as any potential market shake-ups due to the new presidential administration, could further jeopardize the housing market's now moderating recovery. We'll be on deck throughout the next year monitoring housing markets across the nation, but for now, our models are predicting softer growth for 2017." The Clear Capital HDI Market Report provides insights into market trends and other leading indices for the real estate market at the national and local levels.