The housing market of 2016 is expected to achieve restrained yet concrete growth. Although interest rates are expected to rise, they are of less concern to the workings of real estate this year. With an appreciation in property values, fall in vacancy rates, and rents touching record highs, real estate investors are expected to reap maximum benefits
People looking for predictable returns might turn to the housing market, which unlike stocks, offers stable assets to invest in, as put by the Senior VP of National Sales and Business Development, Anthony Cazazian of B2R Finance.
Here’s what experts predict would be the most dominant economic trends in the housing market for 2016.
The Demand for Rental Properties Will Increase
CoreLogic forecasts the creation of more than 1.25 million new homes, with the improvement in employment rates and the labor market. This would lead to an increase in demand for housing, especially the rental properties.
Builders are slow in constructing new single-family homes that limits their supply, pushing up rentals and property prices. According to Redfin, the shortage of supply is the biggest dilemma plaguing the real estate market in 2016.
Chief economist of Moody’s Analytics, Mark Zandi believes millenials to be the cause of rise in demand. Vacancy rates have hit an all time low in 30 years and the outstripped supply is causing the rentals and prices to rise continuously.
Rents Will Continue On the Upward Trend
As discussed in the previous point, rents will be on the rise throughout 2016. The 2016 Rental Affordability Analysis by RealtyTrac depicts that rentals for 3 bedroom properties will hike up by 3.5% on an average in 2016.
The RealtyTrac vice president, Daren Blomquist believes that renters would face difficult times in 2016 with rents increasing at a faster pace than wages, and the home prices increasing at an even rapid pace than rents.
According to the study , in 58% of the housing markets in United States, buying is comparatively affordable, despite the rapid appreciation in prices that outpace the growth in rent in 55% of the markets.
Trulia predicts the trend will continue. The housing website stated, “Although interest rates are sure to rise, we think buying will continue to beat renting,” as a prediction for 2016. According to Zandi, overall, the real estate market is profitable for rental property investors; concluding that landlords, taxpayers, and homeowners have good times to look forward to in 2016.
Interest Rates are Expected to Rise Gradually
Chief economist and senior vice president at CoreLogic, Frank Nothaft believes that the United States will progress into the eighth successive year of economic growth. Most economists predict a 2% to 3% growth in 2016, which according to them would create sufficient jobs to bring down the national unemployment rate.
With the employment rate going up, it is expected that the Federal Reserve would increase short-term rates of interest by an estimated 1% point during 2016.
Sean Becketti, the chief economist for Freddie Mac said, “Mortgage rates will tick higher but remain at historically low levels in 2016.” He predicts the 30-year fixed-rate mortgage would average less than 4.5% on annualized basis for 2016.
Zillow.com’s chief economist, Svenja Gudell, thinks the Feds would raise rates at 25 basis points four times during the year.
According to Matthew Zall, the Capital Markets director at B2R Finance, the real estate market has already been conditioned to the expected hike in the interest rates. He said the, “Mortgage market has already factored an increase into the rates that are now being quoted.”
House Prices and Sales are Expected to Rise
Freddie Mac, Redfin, CoreLogic, and Realtor.com predict that there will be an overall rise in the prices and sales of homes. However, he also forecasts the growth to occur at a snail’s pace, given the expected rise in mortgage rates, and lower affordability.
Realtor.com’s chief economist, Jonathan Smoke predicts the real estate market to flourish into a healthy market pertaining to modest gains from current sales and prices, as opposed to the rapid growth in preceding years.
Here’s a roundup of the prime economic and housing indicators for 2016 in comparison with the expected actual statistics of 2015.
|Housing Indicators||2015 Expected Actual||2016 Forecast|
|Mortgage rate||4.15%||Hitting 4.65% by year end|
|Home ownership rate||For 4Q 2015, 64.3%||For 4Q 2015, A fall from predicted 63.4% to 63.3%|
|Home starts||7% rise in single family home starts, and an overall increase of 10%||15% rise in single family home starts, and an overall increase of 12%|
|Sale of existing homes||6% increase, 5.26 million||3% increase, 5.4 million|
|Sale of new homes||14% rise with a boom in single family homes||16% rise with a boom in single family homes|
|Appreciation in home prices||6% rise||3% rise|