New American Funding Blog

Trends that will affect real estate in 2016 - Part 1

By Courtney Lynch   |  February 17, 2016

Baby Boomers hoping to downsize to a more affordable home will help with inventory levels in 2016.The housing market improved immensely over the past year and is expected to continue doing better in 2016, many experts agree. However, in this new housing landscape, many trends are emerging that home buyers and real estate agents alike should keep in mind.

Mortgage rates

Mortgage rates have been low at the beginning of 2016, encouraging many to apply for a loan, according to the Mortgage Banker's Association [1]. Rates have been at historic lows for nearly a decade, with interest rates being kept at near zero.

In December, that changed when the Federal Reserve began to slowly boost interest rates. Time Money explained the first increase did not initially have a big effect on mortgage interest rates, partially because it was highly anticipated and many people in the industry were aware of its likelihood.

The rate hike is expected to be the first of four, each at 25 basis points. This means the possibility that mortgage rates will be affected throughout the year is greater. Realtor.com explained that, by the end of 2016, the 30-year fixed rate mortgage is expected to be 60 base points higher than it was at the end of 2015 [3].

Millennials

Generation Y has had many real estate professionals worried for a while, as very few of them were choosing to give up renting in favor of homeownership. However, last year saw many people from this generation enter the housing market. According to Realtor.com, millennials accounted for nearly 2 million sales - more than one-third of total purchases.

Time Money explained that, while millennials aren't buying homes at the same age as their parents and grandparents, they still hold aspirations of owning a home. However, many are waiting until later in life, as they are with other traditional milestones, like marriage and starting a family. This means the population of millennial homebuyers is likely to continue growing in the coming year and beyond.

Inventory

Time Money explained another reason many millennials haven't entered the housing market is that inventory is down right now, especially at lower price points. Inventory is expected to improve in the coming year, though.

Inventory grows in two ways: from houses that are put up for sale, and from new construction. Both are expected to increase in the near future. According to Realtor.com, baby boomers are reaching an age of downsizing, leading many to sell their homes and purchase smaller ones. According to National Real Estate Investor, this trend will most significantly affect the New York and San Francisco metro areas, as retirees search for more affordable housing [4].

At the same time, Realtor.com reported Generation X is generally doing well financially as they enter their main working years. This gives them the opportunity to upgrade by selling their current homes and buying new ones. This will boost inventory levels in the lower price range, since many of these families will be moving to better neighborhoods.

Homeowners will also look into selling their homes while rates are still low, in hopes of buying property with a good rate on a new mortgage.

More homes will be built in 2016, as well. Over the past few years, many builders focused on producing high-end and expensive homes, in order to make up for low numbers of employees and rising cost of land. However, as the market continues to demand more low-priced housing options, builders will respond. Realtor.com explained new home prices began to fall toward the end of 2015, and they expect the trend will continue this year.

Sources:
[1]. Mortgage Banker's Association
[2]. Time Money
[3]. Realtor.com
[4]. National Real Estate Investor

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