2016’s Telltale Real Estate Trends
Written by: Michaella Radich
2015 was a successful year for the economy, with employment opportunities and money continuing to roll in, 2016 is expected to be one of the best years for housing since the early 2000s. The following five trends are expected to shape the 2016 real estate market.
1. A return to normalcy.
The market’s growth in 2016 will be slightly slower than 2015, but the rate will be normal and healthy for the real estate industry. After 15 years of very abnormal activity, distressed sales are to become less common, new construction will return to traditional levels, and prices at a rate consistent with a stable market.
2. Generational buyers will make 2016 a record-selling year.
Millenials were responsible for more than one third of sales in 2015. As their numbers increase and financial situations strengthen, the trend of millenials moving the market will continue this year. For many buyers ages 25 to 34, 2016 will mark their first home purchase, meaning other generations will have to take on larger roles.
Members of Generation X and late Baby Boomers, who are moving into retirement, will play a double-role of both buying and selling. As Gen Xers are able to relocate to nice neighborhoods in their financial primes, Gen Xers will downsize, providing millenials with the suburban inventory they desire.
With a tight supply, inventory will move much faster in 2016. Assuming the price appreciation will slow to a more normal rate this year, buyers will see higher mortgage rates on new purchases.
3. Builders will focus on budgets.
In recent years, builders have tended to avoid catering to entry-level budgets, in the face of higher land costs, limited labor, and unpredictable demand. While this trend proved profitable for builders, their potential was limited by the luxury price ranges.
Expect this to change in 2016. As the economy helps boost credit scores, first time buyers are looking more attractive to builders. Realtor.com predicts a promising increase in new home sales and single-family construction, as builders cater to a more reasonable price point in 2016.
4. High-cost markets will feel the effect of high-mortgage rates.
In 2015, mortgage rates went up, and then went back down. The same trend is expected for 2016, which means a reliable upward trend in mortgage rates, especially in the first part of the year.
Though the increase in mortgage rates for 2016 will be manageable, it means that monthly payments and debt-to-income ratios will also increase. Markets with the highest prices will see the biggest increases, resulting in fewer sales.
5. Rents will increase more than home prices.
With affordable purchase prices, does not necessarily come affordable rent prices. Rents are increasing at a much faster rate than home prices, and the trend is expected to continue into 2016. One positive that stems from increasing rent prices, is that buying is more affordable in more than 75 percent of the United States.
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