Exciting 2016 Real Estate Forecast: ‘Normal’ Market

Exciting 2016 Real Estate Forecast: ‘Normal’ Market

2015 may have been the best year for housing since 2007, but the market will likely get even rosier in 2016! One of the main drivers behind the brighter 2016 real estate forecast: the projection that employment will continue to grow, which will add to consumers’ wallets – allowing them to purchase their first home or upgrade to a new one.

Here’s 5 real estate trends that will positively impact the housing market in 2016:

The Return to “Normal”

The 2016 real estate forecast shows this year will bring healthy growth in not only home sales, but home prices. The growth will be at a slower pace than 2015, but don’t take this as a negative indicator – it’s just a return to normalcy. We’ve lived through YEARS of abnormal housing trends, after working off the housing bust devastation. We’re finally seeing normal real estate market conditions.

Home prices are expected to follow at more normal rates, consistent with a balanced market. New construction and distressed home sales are also expected to return to more historic levels.

Generational Buying Shuffle

Millenials emerged as a dominant force in 2015, representing almost 2 million home sales. That’s more than 1/3 of the total! Due to improving financial; conditions, the pattern is expected to continue in 2016, with the majority of buyers between 25 and 34 years old becoming first time homebuyers.

Two other generations will also have a big presence in 2016: financially recovering GenXers and older baby boomers entering retirement. Since most of them are already homeowners, they’ll play a double role – boosting the market as both sellers and buyers.

Affordable New Home Construction

Single-family construction is one aspect of housing that has yet to fully recover. Builders face higher land costs, limited labor, and concerns about the demand in the entry-level market. As a result, they shifted to constructing more higher-priced units. This caused new home prices to rise significantly faster than existing-home prices.

In 2016, builders will likely shift to more affordable products to cater to the entry-level buyers. We already saw a decline in new-home prices for new contracts signed in the fall. Credit access is also improving enough to make the first-time buyer segment more attractive to builders.

Higher Mortgage Rates

Mortgage rates went up in 2015, as expected, but they also went back down. 2016 will most likely bring the same volatility, but a recent move by the Federal Reserve to guide interest rates higher should push mortgage rates higher. The 30-year fixed-rate mortgage will likely end 2016 about 60 basis points higher than today’s level.

Higher rates will drive monthly payments higher, and, along with that, debt-to-income ratios will also go higher. Markets with the highest prices will see that higher rates will result in fewer sales; however, across the U.S., the effect will be minimal as more existing homeowners sell and buy before rates go even higher.

Rents Will Go Up Even Higher

Rental prices skyrocketed last year, and they will continue to go up in 2016. More than 85% of U.S. markets have rents that exceed 30% of the renting household’s income. Rents are also accelerating at a more rapid pace than home prices. Because of this, it is more affordable to buy than it is to rent in most cases.

However, for the majority of renting households, buying is not a near-term option due to poor household credit scores, limited savings, and lack of documentable stable income of the kind necessary to qualify for a mortgage today. The market will only improve if we see more construction of affordable rental housing as well as more of a pathway for renters to become homeowners.

Source: “Exciting 2016 forecast: ‘Normal’ real estate market,” Florida Realtors®