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Dimitri Siscos
913-766-2195
dsiscos@gmail.com
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Dimitri Siscos
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913-766-2195
dsiscos@gmail.com
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2016 REAL ESTATE MARKET OUTLOOK

Despite existing-home sales dropping big in November, the biggest since 2013, the National Real Estate Market is primed for expansion in 2016. Here’s why. Warmer and sunnier days in many parts of the country caused an increase in single-family and multifamily home construction. Also, the population of millennial homebuyers is expected to grow in 2016. This means increased demand to help the housing market start to see positive gains. With unemployment steadily decreasing, orders for new durable goods increasing 3 percent, inflation staying level, and income beginning to grow, the Fed decided to raise interest rates. The rate increase signals that our economy is getting stronger. Homeowners, home buyers, and home sellers should all rejoice. Mortgage lenders beginning to loosen their credit standards is another sign of good things to come. So, don’t let the drop in existing-home sales in November fool you, with a stronger economy home sellers can expect eager home buyers in 2016.

Declining Existing-Home Sales

Lawrence Yun, the chief economist at the National Association of Realtors believes slow existing-home sales in November resulted in a possible increase in closing timeframes that moved some transactions into December. Yun pointed out that that the market itself adjusting to the new Know Before You Owe rule played a role in pushing the closing timeframe into December. He also doesn’t think that a slow down in demand caused a decrease in sales because “Sparse inventory and affordability issues continue to impede a large pool of buyers’ ability to buy, which is holding back sales,” he said. “However, signed contracts have remained mostly steady in recent months, and properties sold faster in November.”

With that said, properties stayed on the market for 54 days in November. That’s down 31 percent from October. So homes still sold fast despite the slump in sales for November. And although the 5.1 month supply of homes is up from 4.8 months in October, it’s still a seller’s market. In fact, at this pace the housing inventory could be sold by the time the Masters golf tournament rolls around. But if the inventory starts moving towards 6 months, a buyer’s market will start to form.

Millennial Home Buyers in 2016

The low demand in November meant that first-time home buyers had only a 30 percent share in demand, which is slightly down from 31 percent in October and last year. However, in 2016 home sellers could see an increase of first-time home buyers enter the housing market because of the burgeoning segment of millennials between 25 and 34 years of age. The Census Bureau projects that the population of millennials aged 25 to 34 will increase by an average of nearly 500,000 per year in the second part of the decade. Also, NAR’s inaugural quarterly Housing Opportunities and Market Experience survey reported that a large majority of millennials between 25 and 34 years of age who rent want to own a home in the future. Affordability and poor financial standing were the main reasons for not buying, but 26 percent of this segment surveyed said that a positive change in finances would cause them to purchase a home.

The University of Michigan Survey of Consumers expects nominal income growth of 5 percent in 2016. Therefore, this segment of millennials should see their financial situation change in the positive direction. As a result, this population of first-time home buyers will enter the market, increase the demand for home purchases, help home sellers sell their homes quicker, and expand the housing market.

Interest Rates

The Federal Reserve raised short-term interests this month, but Yun believes that this first increase will have little impact on mortgage rates. Freddie Mac reported that the average commitment rate for a 30-year, conventional, fixed rate mortgage stayed below 4 percent, but rose from 3.80 percent to 3.94 percent in November. Mortgage rates are expected to rise to 4.50 percent by the end of 2016, but this rate is still historically low; a full percentage point below the rate during the recession of 2008. The low fixed mortgage rate should help spurn demand and encourage first-time home buyers to enter the market. 

Mortgage Lenders Helping Home Buyers

Fannie Mae’s fourth quarter 2015 Mortgage Lender Sentiment Survey™ shows that lenders expect to ease mortgage credit standards for GSE-eligible loans and government loans over the next three months. This should reduce the affordability problem for first-time home buyers. As a result, this will help young adult homeownership. Although home prices will be high, all of this is good news for home sellers because they should expect an increase in demand for their home.

In 2016, the first-time home buyer will have mortgage credit options available that were not available during the housing bust. First-time home buyers will have low-and no-down payment mortgage loans available to them. Some loan options available include FHA loans and the conventional 97 percent program offered by Fannie Mae. Qualifying first-time home buyers need only to put 3 percent down on a home.

Homeowners and Refinancing

According to the Mortgage Bankers Association weekly survey, the Refinance Index increased 11 percent compared to the previous week. So it appears homeowners have anticipated the Federal Reserve’s increase in interest rates. If you’re a homeowner with an adjustable-rate mortgage or a variable home equity line of credit, you should expect your rates to rise in 2016. The first part of 2016 will be a good time to refinance. Home equity lines of credit (HELOC) are both fixed and variable. Variable HELOCs are tied to the Federal Reserve prime rate. Whereas fixed HELOCs are not. By refinancing early in 2016, you’ll afford any major life events that may occur such as daughter’s wedding, high college tuition, or home renovation.

Concluding Thoughts

Despite slumping existing-home sales in November, the National Real Estate Market is on its way to expanding. The Federal Reserve raising interest rates indicates optimism in the housing market and the economy as a whole. The 2016 housing market will remain a sellers market that should see an increase in first-time home buyers entering the market because of the strong desire of homeownership by millennials 25 to 34 years of age, and easing credit standards and increases in wages. Homeowners with variable mortgage rates should expect their rates to rise in 2016, but early 2016 will be a good time to refinance so that you won’t fill the brunt of further interest rate increases.

We wish you a happy and prosperous 2016. Whether you’re a home buyer or home seller, we can help you reach all your real estate goals in 2016. For assistance buying or selling your home, contact us today at The Siscos Group Realtors.