A quick U.S real estate forecast for 2016

We are all curious about 2016 and what it will bring us especially for all of you thinking about buying your next home or selling your current residence. Here are some pointers gathered along real estate seminars and economist predictions.

seattle fog

Median Sold Prices – Home prices will continue to increase nationally by single digit numbers, between 5-6%. Urban metro areas in high demand by Millennials will see an increase in the double digits. According to the National Association of REALTORS®, the third quarter national median price for existing single family homes was $229,000, which represented a 5.5% increase over third quarter 2014. There are still areas of very high demand and low inventory and this will continue until new home starts can catch up to the lack of supply.

Housing Inventory – The inventory shortage was caused by the cumulative impact of home builders not being in the market for well over five years. This severe shortage fueled the demand.  We are still not back to our level needed to sustain regular inventory rates.  This probably won’t happen until well into 2017. It is likely that more buyers will be entering the market for a home. Improved job markets bring more buyers into the market and according to the Bureau of Labor Statistics, nationally the unemployment rate stands at 5.0% for November, 2015 – the lowest it has been since April, 2008.  We will continue to see inventory challenges until new construction picks up even further.

Homeownership Rate – The homeownership rate (the percentage of Americans who own their own home) is near the 20-year low of 63.7% in the third quarter of 2015, falling from the all-time high of 69.2% in 2004. The low was 63.4% reached during second quarter of this year. I predict this number will be even lower in 2016 due to the lack of inventory and increasing home prices due to the inventory shortages. The steady decline in the homeownership rate is partially the result of tight lending conditions and a historically low share of first-time buyers.

 

Housing Starts – The current pace of home construction is dangerously low at about 60% of the norm. New construction did not pick up enough in 2015 to address the housing inventory problem. Housing starts are well below the 50 year average of 1.5 million starts per year. Two big reasons for the slow recovery in new construction are the difficulty in obtaining construction loans and construction labor shortage. It is highly probable that housing starts to increase in 2016 as builders and investors are able to participate in the market because of the rise in house prices. New home starts should increase by at least 20% in 2016.

Interest rates – The improving economy is a sure sign that interest rates will increase in 2016. The new rates will balance job growth and higher inflation rates. The Federal Reserve increased interest rates a quarter of a percentage point at its December meeting.  The federal fund rate has a significant effect on mortgage rates. The federal funds rate had remained near zero since December 2008 and the Reserve had not raised rates in almost a decade.  The Federal Reserve will keep an eye on jobs, the economy, and inflation before determining action on additional rate hikes. However, the 30 year fixed rate mortgage rate are expected to reach 5.5% by the end of 2016.

Second Homes Market – Second home sales will continue to see a strong increase in 2016 due to the passing of wealth from the Silent Generation (those born 1925 – 1945) to Baby Boomers (those born between 1946 and 1964) and due to Baby Boomers buying multi-generational homes and vacation homes.

Rental Market for Owners/Investors – Due to dropping homeownership rates, the total rental income for investors has more than tripled over the past seven years, growing by an astonishing 240% from 2007 to today. The Census Bureau reports that median asking rent has increased 30.6% comparing third quarter 2005 to third quarter 2015 (as more rental households bring more rent). As Millennials enter the job market and strike out from their parent’s homes on their own, renting is usually the first step. There is high demand for rentals in urban locations where there is appealing job activity for millennials. High demand areas will continue to see double digit increases in rent. I predict rental demand in urban centers will continue to be in high demand in 2016. Source: http://www.census.gov/housing/hvs/files/currenthvspress.pdf  http://www.census.gov/housing/hvs/data/histtabs.html

 I am excited for what 2016 has in store! For additional information and predictions on our local market. Please call or text: (206) 214-8499 or send me an email to Veronique@belleresidence.com.

Mt. Rainier

 

 

Leave a Reply

Your email address will not be published. Required fields are marked *