The year 2016 is almost certain to be the year of normalcy in residential real estate. Real estate focused businesses such as Corelogic, Zillow, Redfin, and National Association of Realtors, have slightly varying numbers but numbers and opinions that are not far apart. All agree that there will be a limited increase in the sale of existing homes. However, there is some consensus that there will be an increase in the sale of new homes. Also, the cost of new homes will increase even though the inventory will grow.
All say that prices of existing home will appreciate this year but at a slower pace than 2015. Most likely in the 4 to 5 percent range compared to close to 8 percent last year. Still, home appreciation is likely to exceed wage and salary increases this year. The significance of that is two fold. First, home value appreciation increases owners wealth even when their take home pay is relatively stagnate. Additionally, rental vacancies are expected to remain very low and the cost of rent will be substantially higher. That means renters are going to fall even farther financially behind in 2016.
By the Numbers
What follows are some of the numbers that the larger real estate professionals are putting out for the New Year.
National Association of Realtors. Existing home sales will increase a modest 1 to 3 percent in 2016 compared to 7 percent in 2015. Prices will grow by between 4 and 5 percent compared to 8 percent in 2015. Economic growth will be weak but will avoid going into recession. One of the biggest impacts to the residential market will be the increase in mortgage rates that will reach somewhere between 4.5 and 5 percent. While not at unprecedented levels, the mortgage rate will keep additional first time buyers out of the market. That will be a major contributing factor to keeping price growth modest.
Redfin. Prices and sales will grow half as fast in 2015 but mortgage qualifications will become easier (at the higher rates). There will be more first time buyers but they will be older people that are more established in their careers with higher incomes and better established credit. Still, inventory will remain limited and closings will take longer due to recent changes in consumer laws.
Zillow. Home values will increase 3.5 percent this year. Value increase will exceed economic growth making homeownership a solid investment. Suburban areas that more resemble urban neighborhoods with full retail and entertainment amenities will remain the hottest markets. Rents that specifically target middle and lower incomes will see the largest increases.
Corelogic. Home sales will return to normal levels at about 1.25 million. Mortgage rates will be up a half of a percentage point. Home sales will increase 4 percent with prices rising between 4 and 5 percent. Investors will buy more multifamily houses than single-family homes.
The beginning of 2016 looks to be a continuation of the new normal. However, the new normal is all about an ever-changing dynamic real estate market. In the new normal, the best way to stay ahead of the real estate game is by keeping an eye on the changing market.
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Author bio: Brian Kline has been investing in real estate for more than 35 years and writing about real estate investing for seven years. He also draws upon 30 plus years of business experience including 12 years as a manager at Boeing Aircraft Company. Brian currently lives at Lake Cushman, Washington. A vacation destination, a few short miles from a national forest. In the Olympic Mountains with the Pacific Ocean a couple of miles in the opposite direction.