2016: The Year Real Estate Returned to Normalcy

Last year may have been the best for the housing market since 2007, and it will likely only be getting better in 2016, according to a recent real estate forecast by realtor.com®. The driving force behind these projections for a better 2016 is largely due to the projections that job growth will continue to climb, allowing more consumers to become first time buyers or upgrade to a new home. If you or any of your employees might be in the market for a home this year, here are some things you need to know.

Realtor.com® highlights the following housing predictions for 2016:

1. More ‘Normal’ is on the way.

Though it won’t happen at the same rapid pace it did in 2015, we can expect a healthy increase in home sales and prices. “This slowdown is not an indication of a problem—it’s just a return to normalcy,” writes Jonathan Smoke, realtor.com®’s chief economist. “We’ve lived through 15 years of truly abnormal trends, and after working off the devastating effects of the housing bust, we’re finally seeing signs of more normal conditions.” Both new construction and distressed sales are expected to return to historical averages, bringing home prices with them back to more normal rates we would find in a balanced market.

2. Generational buying trends come into focus.

Millennials accounted for roughly one-third of home buyers in 2015. Expectations for this pool of buyers heading into 2016 remain high with the majority of buyers ages 25-34 projecting as first-time buyers. Financially recovering GenXers and older baby boomers who are entering retirement will also have a large part to play in the real estate market this year, realtor.com® notes. “Since most of these people are already homeowners, they’ll play a double role, boosting the market as both sellers and buyers,” Smoke notes. “GenXers are in their prime earning years and thus able to relocate to better neighborhoods for their families. Older boomers are approaching (or already in) retirement and seeking to downsize and lock in a lower cost of living.”

3. Affordability the focus for new home construction

During the economic downturn, builders started constructing more expensive homes, causing the price of new homes to rise much faster than the cost of existing homes. Builders have been faced with the cost of land rising, limited labor, and skepticism about the demand of the entry-level market. In 2016, they will likely shift to more affordable new construction to cater to the entry-level market. “We are already seeing a decline in new-home prices for new contracts signed this fall,” notes Smoke. “In addition, credit access is improving enough to make the first-time buyer segment more attractive to builders.”

4. Higher mortgage rates.

Mortgage rates in 2016 will likely be quite volatile. However, the recent move by the Federal Reserve to increase interest rates will push mortgage rates higher as this year progresses, compared to the historic lows they have been at for the past several years. The 30-year fixed-rate mortgage will likely finish out 2016 nearly 60 basis points higher than what they ended 2015 at. “That level of increase is manageable, as consumers will have multiple tactics to mitigate some of that increase,” Smoke says. “However, higher rates will drive monthly payments higher, and, along with that, debt-to-income ratios will also go higher.” The markets with the highest home prices will see the effects from the higher rates the most.

5. Renting costs continue to climb.

The costs to rent continue to skyrocket, and 2016 should be no different. Across the country, more than 85 percent of markets have rents that exceed 30 percent of the income of renting households. “Rents are accelerating at a more rapid pace than home prices, which are moderating,” Smoke says. “Because of this, it is more affordable to buy in more than three-quarters of the U.S. 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.”

If you have any questions about homes in your market or want to buy or sell a home, give us a call at 1-844-RELOCAL. Not only will you get to work with a professionally trained realtor, but we will also be able to save you thousands of dollars!