Top 6 Real Estate Predictions for 2016
To say there have been some ups and downs in the housing marketing over the past decade would certainly be an understatement at best. Constant economic changes have led to an often unpredictable real estate market over the past several years, leaving everyone from home buyers to new home builders wondering what to expect.
2015 was a strong year for most housing markets across the U.S. and there has been no real sign of any market slowdown in 2016. With the tumultuous cycle we’ve seen over the past several years though, there are a lot of people still wondering if this momentum will continue through 2016. If you’re curious about what to expect in the 2016 housing market, take a peek at our top real estate predictions for 2016.
1. Housing Market Returning to Normal
The housing market crash has had a far-reaching effect on the real estate industry. Many homeowners defaulted on their mortgages and lost their homes, banks changed their lending criteria to make it harder to secure financing, and there was a huge decrease in new home construction as buyer demand came to a halt. The combination of these factors along with the economic recession brought about abnormal trends to the real estate market and unpredictable times.
The clouds began to part a few years ago, and we have since seen some real positive signs in the housing market. Many markets could even have been classified as abnormally hot sellers’ markets in 2015 with home values soaring and homes selling as soon as they hit the market. In 2016, experts predict we will see a more normal real estate industry that includes reasonable increases in home values and sales.
2. Higher Interest Rates
With all signs pointing to a stronger, more stable real estate market, the federal government finally decided to raise interest rates at the end of 2015. The first rate hike of 0.25 percent occurred in December, and experts say that if the economy continues to improve, we can expect to see more hikes in 2016 – totaling as much as a full percentage point bump.
Higher interest rates of course mean buyers will be faced with higher mortgage rates and monthly payments, but there are actually some important benefits to higher interest rates.
- A stronger U.S. dollar in the worldwide economy.
- Higher returns for people saving money.
- More interest income for retired individuals.
- An increase in banks willingness to lend out money.
The combination of these effects should have a positive impact on the 2016 housing market. With banks loaning more money, we’ll see an increase in existing home sales as well as new construction. And although increased interest rates will mean higher mortgage rates as well, the threat of increases will likely nudge buyers and sellers who are on the fence to make their move now while rates are still relatively low.
3. Generational Trends
The 2016 real estate market is predicted to include some important generational trends as well. In particular, industry experts expect to see more millennials and baby boomers in the housing market.
Millennials have developed a reputation for not subscribing to traditional beliefs about homeownership which are tied to the American Dream. In the years after the housing market crash, we saw many college students “boomerang” back home to live with their parents after graduation, and the majority of those who actually ventured out on their own decided to rent instead of buy.
However, new evidence shows that homeownership is just as important to millennials, and the reason many have held back has more to do with their financial situation than their desire to own a home. This has many experts predicting 2016 will be the year that many millennials decide to enter the housing market. This is good news for new home builders as many millennials who have been saving up over the past several years will be looking to purchase brand new homes.
The other generational group to watch in 2016 will be baby boomers. As a large number of baby boomers hit retirement age, experts predict they will look to sell their large homes and downsize to smaller ones in order to lock in a lower expense for the retirement years. New construction homes will also be popular among baby boomers who want to downsize but still customize their home to their changing lifestyle.
4. An Increase in New Construction Homes
2016 real estate trends point to a strong growing housing market. More millennials and baby boomers will enter the market and the increasing willingness of banks to lend will facilitate home buying. This will likely mean new home builders will be busy trying to keep up with demand.
In particular, experts predict the increase in millennial home buyers will lead to an increase in affordable new home construction being built this year. With more savings in their pockets, millennials will explore the option of building a new home where they can add their own customizations.
5. Home Prices & Sales to Increase
Another result of the growing housing market in 2016 will be an increase in home prices. Demand for homes will drive prices up, and financial data analysts at CoreLogic are even predicting home prices will increase faster than the rate of inflation.
Experts estimate home prices could increase by 4 to 5 percent in 2016, and this will likely tempt many homeowners to cash out of their equity and move up to a larger home. Many homeowners have been sitting back waiting out the unpredictable real estate market, but the improved economy and increase in home values will signal to many that this is the right year to sell.
6. Rents to Increase
A final prediction for the 2016 housing market is that rental rates will increase. This isn’t exactly new news as rents have been increasing at a faster pace than home prices for some time now. However, steady demand in the rental market and low vacancy rates mean rents could skyrocket in 2016.
For those interested in investing in the rental market, 2016 should be a great year to jump in. Banks will be more willing to lend and increased rent mean a higher return on investment. Although some renters are stuck in situations that make it hard to buy a home (not enough savings, lower credit scores, etc.) this prediction means 2016 is a great year for those who can quality for a home loan to finally make a purchase.
Overall, 2016 real estate trends offer a positive outlook for new home builders, real estate agents, homebuyers, and home sellers alike. These favorable conditions will likely lead to a lot of moving and shaking in the 2016 housing market, so get ready for an exciting year!