“Considering all the ups and downs experienced in the real estate market over the past decade, many people are questioning what to expect for real estate in 2016. If you’re thinking of selling, will it be a good time to put your house on the market? If you’re thinking of buying, will it be the right time to purchase a home or even build a brand new home? Will it be a good year to purchase an investment property or is the market over valued? To answer these questions, we’ve gathered the top real estate predictions from experts like CoreLogic, Realtor.com and Trulia to present you with 7 key real estate trends to expect to see in 2016.
1. A Return to Normal
The housing market crash created some very unstable conditions in the real estate market over the past decade as construction slowed, homeowners defaulted on mortgages, and banks became more stringent in their lending guidelines. These factors plus the resulting economic recession have caused some abnormal trends in the real estate market.
However, in 2016, we are expected to see a more normal housing market that will grow along with the economy. Realtor.com predicts healthy growth in both home sales and home prices, similar to what we saw in 2015, although at a slightly slower pace. 2016 should be much more predictable and stable than past years.
PwC echoes the sentiments that 2016 will be a good year for real estate. This interactive tool allows you to look at predictions for over 50 major US cities. On the map, you’ll notice that all major cities are predicted to have fair to good markets in 2016.
2. Rising Interest Rates
With a stronger economy, the federal government has begun to raise interest rates. We saw the first rate hike in nearly a decade take place in December 2015 as the Federal Reserve determined the market was strong enough to increase the interest rate by 0.25 percent. This small increase will likely lead to further increases in 2016 with predictions there will be approximately a one percentage point increase between now and the end of the year.
Many people see rising interest rates as a bad thing. However, as Bankrate points out, there are actually some strong benefits to higher interest rates. The increase will mean a stronger dollar, more interest income for retirees, and higher returns for savers. A higher interest rate will also increase banks’ willingness to lend money. This means 2016 will be an ideal time to find financing for your dream home or a good long term investment property. Acting sooner rather than later will allow you to lock in a lower interest rate before rates climb higher later in the year.
3. Millennials Enter the Housing Market
During the years after the housing market crash, there was a lot of talk about about how millennials (age 18 to 34) were not buying homes at the rate of prior generations. There was a good deal of emphasis put on “boomerang” kids – college students who move back in with their parents after graduation, and a large number of millennials choosing to rent rather than buy.
These observations (along with countless research studies on the topic) caused many to assume that millennials were an entirely different generation and that the traditional ideas of homeownership and the American Dream did not resonate with them. However, new evidence from a 2014 Fannie Mae survey suggests that homeownership is in fact still important to millennials, and it is their ability to purchase a home, not their desire, that is holding them back from homeownership.
In 2016, we expect to get more hard evidence on this point. As the economy improves and millennials find themselves in a better financial position, they will become an active part of the real estate market. In 2015, millennials represented nearly one-third of homebuyers. The trend will continue into 2016 with many millennials becoming first-time homebuyers within the next year.
4. Increasing Home Sales & Prices
As mentioned earlier, the housing market is predicted to continue to grow in 2016 – pushed by an increase in lending options and more millennials joining the market. This increased demand for housing will mean home prices will also rise. In fact, CoreLogic predicts that home prices will rise at a faster rate than inflation.
With home prices predicted to increase by 4 to 5 percent and a lot of new buyers in the market, 2016 will be a great time for home sales. Increased equity, an improved economy, and feelings of financial security will lead to more people selling their homes in 2016.
5. Baby Boomers’ Dual Role in the Buying & Selling Markets
Another key demographic in the 2016 housing market will be baby boomers, especially those older boomers who are approaching retirement or have already retired. Several of the other factors on this list play into this trend including (1) higher interest rates mean more interest income for retirees and more lending options, (2) growing home prices and increased demand make it an ideal time to sell, (3) a motivation to get in the housing market early before interest rates increase further.
2016 will be an ideal year for baby boomers to sell their home at a higher price than in years past. After selling, many boomers will look to downsize their new home in order to lock in a lower cost of living for their retirement years. In particular, boomers will be drawn to new homes over resale homes in 2016, where they can downsize their home but also customize it to their needs and lifestyle.
6. Affordable New Home Construction
With more buyers in the market (and coming from multiple generations), new home construction is also predicted to increase in 2016. More specifically, experts believe home builders will find their niche by building more affordable new homes to meet the growing demand of young buyers.
In particular, millennials will bring an influx of first-time home buyers to the market. They’ve saved and they’ve waited, and when they finally decide to buy, many will want the ability to customize their own homes while trying to keep costs down. Because of this, many home builders will expand their affordable new home options in order to cater to these entry-level buyers.
7. Increasing Rents
We’ve already mentioned the fact that the improved lending market and the desire to get in while interest rates are still low are two main reasons why 2016 will be a great year to consider investing in investment properties. Another point that helps make timing great for an investment purchase in 2016 is the fact that rental costs are expected to skyrocket, which means even more return on your investment.
For some time now, rents have been increasing at a faster pace than home prices. This means that for the majority of Americans, it is cheaper to rent than own. However, for many people, factors prevent them from purchasing a home, including lower credit scores, lack of stable income and not enough savings.
A stable rental market, low rental vacancy rates, and steady demand will keep pushing the price of rental units up in 2016. If you’ve been considering joining the real estate investment market, now is the perfect time to jump in.
All in all, the prospects for the real estate market in 2016 all look positive, whether you are planning to buy, sell or invest. For everyone that has been standing by and waiting through the economic rollercoaster of the past few years to end, the long wait is over and 2016 will be a great year to finally get off the fence and make your move.