Now that we’re entering our eighth-year post market crash, we’ve made some great progress and have seen an impressive comeback in the housing industry, but what will 2016 bring?
I have done quite a bit of research, consulted with real estate professionals at the recent Inman Real Estate Conference in NYC last week, spoken with my real estate investment clients and have found that everyone expects a positive year.
Below is a list of notable trends for the housing market to look out for in the coming year.
Rise in Mortgage Interest Rates:
There’s general consensus that mortgage interest rates are going to continue to rise in 2016 after the Federal Reserve (Fed) announced in December that it is increasing the federal funds rate for the first time since June 2006. You won't see the cost of mortgages going up much just yet, as it is only a 0.25 percent hike and future hikes are likely to be incremental.
Rise in Home Sales
According to realtor.com, 2016 will be the best year in over a decade with a rise in sales that hasn’t been seen since 2006. This will be due to an uptick in new construction and overall gains in the existing home market. It’s expected to be a year filled with moderate but steady growth. Realtor.com estimates that six million homes will be sold within the year.
2016 Will Be a Seller’s Market
Market conditions are looking good for homeowners looking to sell their homes. The historically low number of new and existing homes for sale in Northern New Jersey makes 2016 even more of a seller’s market, especially for towns within commuting distance to New York City.
Homebuyers will have to grapple with the higher prices and lack of inventory, but they should benefit from an improving job market, continued low mortgage rates and easier credit. Homebuyers will also make motivated offers to get ahead of inevitable future interest rate hikes. All this generates more demand.
Continued strong home price growth and upward pressure on mortgage rates are likely to reduce affordability in the coming years. This may lead to a corresponding cooling in prices - but that is not a bad thing. This is the new normal. It means we are finally stabilizing and that is good for everyone – buying or selling. According to Mark Zandi, Chief Economist at Moody’s Analytics, this is a sign our economy is improving. His view is that “house prices are on very solid foundations; they are supported by homeowners’ incomes. In the bubble, too many of us got into homes we couldn’t afford by committing to mortgages that made no financial sense… No one is getting crazy mortgages today. Regulatory changes in the wake of the crisis and cautious mortgage lenders make that all but impossible.“ You can check out the Washington Post article in which he was quoted here: https://www.washingtonpost.com/realestate/a-look-at-the-trends-that-will-impact-the-financial-stakes-in-housing/2016/01/06/44de14ce-9d16-11e5-a3c5-c77f2cc5a43c_story.html
Decline in Refinancing
While home purchases will increase next year, higher interest rates will likely reduce the refinance volume. To counter this reduction in refinancings, the hope is that lenders will turn their attention to the purchase market. It's still a good time to buy and it will be important for lenders to educate buyers who may not think they can jump into the market yet.
Three Distinct Segments of Home Buyers
The three segments of home buyers will be driving sales in 2016.
(1) Millennials (25-34 years old) Svenja Gudell, Chief Economist for Zillow.com, has predicted that “Millennials are going to be bigger and bigger buyers in the market going forward. I don’t think next year we’re going to see a flood of millennials, but they’ll just trickle in. They’re taking their time getting to the market and buying a home. They’re getting married later on in life. They’re having children later on in life. So they’re making home-buying decisions later on in life. Commute time and a preference for older homes have these buyers looking in city-centers and closer-in suburbs.
(2) Younger Gen X'ers (35-44 years old) Accounting for 20 percent of home purchases in 2015, buyers between the ages of 35-44 will be back in the market again likely making up the second largest population of buyers in 2016. These buyers have rebounded from the financial crisis and are entering their prime family-raising and earning years.
(3) Retirees (65-74 years old): This group is expected to make up the third largest home buying segment in 2016. They will be selling their current home in an effort to downsize and lower their cost of living. Last year, they represented 14 percent of homebuyers.
The real estate investor market should also remain strong. The fix and flip market will continue to be profitable for those who can find underpriced homes to flip. They're out there but it takes patience, tools, a good Realtor and legwork to find them.
It’s important to know the current state of the market. The National Association of Realtors’ Chief Economist, Lawrence Yun, does a good job in his 2016 “Economic and National Real Estate Forecast”. You can access it here.
Real Estate is Local
It is important to keep in mind that these are national projections and averages and real estate markets vary from one part of the country to another, from one state to another, and vary from one county, town, and even from one neighborhood to another. Markets vary and are very local.
If you are interested in knowing the current market value of your home, I can give you a very accurate asking price. Call me at 973-985-6117 or send me an email to Caroline@GosselinHomes.com with the details of your home. I pay a hefty fee to access to all the local and accurate MLS data and more importantly, I know how to analyze it. I can tell you what a buyer will pay for your home in 2016. Simply go here to get a customized analysis: ww.GosselinHomes.com/Sellers.
If you are not interested in selling your home, rest easy knowing we are in a healthy real estate market with appreciating prices. If I can ever be of service to you buying or selling a home, I'm here.
Bio: Caroline Gosselin is a real estate agent with Prominent Properties Sotheby’s International Realty (www.GosselinHomes.com) and heads up The Gosselin Group, ranked in the top 1% out of 80,000 New Jersey realtors by Five Star Professional, as seen in NJ Monthly Magazine. The Gosselin Group focuses on residential sales in New Jersey, along the Midtown Direct Train line to Manhattan, and works with individual buyers, sellers and developers. Caroline holds an M.A. in International Affairs and currently resides in Maplewood, NJ, with her 9-year-old son and their dog.