2015 was another year of low inventory and high prices that kept many buyers out of the market. However, next year things may fall into place for those unable to purchase a home in 2015 as Redfin predicts easier credit and a slower market.
According to Redfin’s forecast for 2016, “Most economists agree that housing prices and sales will continue to grow in 2016, just at a slower pace. Call it a slowdown, but not bad news.”
Here are Redfin’s five housing market predictions for 2016:
- Prices and sales will grow half as fast
As price growth ebbs and mortgage rates rise, more homeowners will stay put. Sales will grow about half as fast as they did this year and prices will rise at a more normal 3.5% to 4.5%, down from almost 6% this year.
According to a recent report from RealtyTrac, for more than a third of the nation’s major metro areas, home prices have reached all-time highs in 2015.
- Easier Credit
Americans for whom a mortgage has been just out of reach will have a better shot at qualifying for one in 2016.
Lenders will embrace new ways to measure creditworthiness and mortgages will evolve to serve a changing American household. For example, credit scores will better evaluate a person’s rental history and utility bill payments. More loans will allow buyers to include income from room rentals, live-in parents and extended-family members.
In a significant move for housing regulation, last week a bill was introduced in the House of Representatives that would allow Fannie Mae and Freddie Mac to consider alternative credit-scoring models beyond the FICO credit score the government-sponsored enterprises currently use when determining what loans to purchase.
- More (and older) first-time buyers
We expect first-timers to make up a bigger portion of the market than they did this year. The reason is simple: The market will be more welcoming to them thanks to the aforementioned slowing price growth and easier access to loans. This year’s market dropouts have saved for bigger down payments and will be ready to give the market another shot early next year. And more of those millennials who had been holding off on buying for various reasons will finally be ready and able to in 2016.
In the Mortgage Bankers Association’s housing report that looks at the future decade, Lynn Fisher, MBA’s vice president of Research and Economics, said, “Improving employment markets will build on major demographic trends – including maturing of Baby Boomers, Hispanics and Millennials – to create strong growth in both owner and rental housing markets over the next decade.”
- Slower market, slowing closings
The 2015 housing market was the fastest we’ve seen at Redfin. From January to October, the typical home was on the market for 36 days, four days faster than the same period in 2014. We expect the market to slow in 2016 as government-backed loans become more common and cash sales become less so. Because of low inventory, bidding wars will still be in force next year, but there will be a lower ceiling on price escalation as 2016 buyers won’t be willing or able to go as high as buyers have in recent years.
To help, here are a few tips from Minnesota Realtor Craig Kamman to help win a bidding war. On example he listed is to offer full price or more. Money is a major factor in a seller’s decision, but not the only one.
- Continuing inventory shortage
The biggest risk to the 2016 market will be the continuation of inventory shortage, especially in the affordable segment of the market. The number of homes for sale shrank from 2014 to 2015 in 45 of the 60 metro tracked by Redfin. Inventory across all 60 metros is down 4 percent from a year ago.
The most recent pending home sales report from the National Association of Realtors said that sales have plateaued this fall as buyers struggle to overcome a scant number of available homes for sale and prices that are rising too fast in some markets.
What do you think of their predictions? We’d love to hear from you.
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