Why Home Buyers and Sellers Should Stay Zen in 2016
Why Real Estate will remain
an attractive investment in 2016
With the latest stock market correction, you are probably looking at alternative opportunities to invest your money and must be wondering about the outlook of the real estate market in 2016. Here are a few reasons why you should not over-worry about the state of the real estate market and why it will remain an attractive investment in 2016.
Mortgage rates will rise but slowly. After seven years of some of the lowest interest rates in American history, the Fed raised the Fed Funds Rate by 0.25%. Although mortgage rates are not directly tied to this rate used by the banks to borrow money, there is no denial that this increase will eventually be passed on to consumers but it should not be the Armageddon that some predicted. For instance, this week, Freddie Mac reported that mortgage rates continue to defy forecasts, as the 30-year fixed-rate mortgage fell even lower and averaged 3.92 % for the week ending January 14, 2016. The Fed made it clear that it is going to tighten its policy over the coming months but mortgage rates are expected to slowly move upward.
This housing boom is different as
the debt/income ratios are much lower than what they used to be between
2007 and 2012. During the last housing crisis, home prices fell 30% on
average and bottomed out in 2011 and 2012 mostly because
mortgage-related debt was totally out of control. While it is likely
that we may see short sales pop up on the market from time to time, the
scope will be much more limited.
More aid for first-time home buyers is in place.
Last year, the Federal Housing Administration reduced mortgage
insurance annual premiums by $900 on average. It is estimated that
Freddie Mac and Fannie Mae’s 3% down payment loans will help boost the
mortgage market this year by up to 10% despite the expected rise in
Job growth will boost real estate in 2016.
Over the past five years, the U.S. has seen a steady rate of job
creation. According to the Bureau of Labor, in the San
Jose-Sunnyvale-Santa Clara Metro, unemployment rate was only 3,9% in
November 2015. Recent nationwide job creation numbers from December
confirm the positive trend which will pull the market upward as more
able buyers will seek to buy this year.
a nutshell, and as Jonathan Smoke, Chief Economist of Realtor.com,
states it: “Normal is coming. We should expect a healthy growth in home
sales and prices, at a slower pace than in 2015 […]. After 15 years of
truly abnormal trends, we’re finally seeing signs of more normal
conditions as new construction and distressed sales are expected to
return to more historical levels, and home prices are expected to follow
at more normal rates consistent with a more balanced market”.