Originally published Jan. 7.
With 2015 rapidly fading in the rear view mirror, U.S. homebuyers and sellers are seeing their thoughts turn to the 2016 residential real estate market.
Several factors that could impact the real estate sector are already in play -- a fresh interest rate hike from the Federal Reserve (with more rate hikes likely to follow in 2016), stronger U.S. gross domestic product growth and a moderately stronger jobs market should bolster the economy and raise both mortgage rates and home prices, experts say.
Mortgage rates will rise, but the U.S. will still end 2016 with the average 30-year fixed rate below 5%, according to Matthew Gardner, chief economist at Windermere Real Estate in Seattle. "I am taking the Fed at its word when it says that monetary tightening in 2016 will be gradual and heavily data dependent," he said. "Accordingly, I expect only a modest uptick in long-term rates in 2016."
Gardner also expects homebuyers to be on a clearer, wider path to mortgage credit in 2016. "Credit quality -- which had been remarkably stringent -- will relax a little," he said. "Access to credit, specifically mortgage instruments, has not been easy for many would-be homebuyers but that is set to change. I believe that we will see some improvement, specifically for borrowers with 'near-prime' credit. This will be of some assistance to first-time buyers; however, credit quality will still be higher than it needs to be."
He also expects existing home sales to rise by a "modest" 4.7% this year, while new home sales should jump by 23%, as builders look to accommodate increasingly interested first time buyers.
"I believe that builders will start to build to the entry-level buyer filling a huge void," Gardner said. "Additionally, I see the total number of new home starts increase quite dramatically in 2016 as banks start to ease lending and builders start to believe that the downward trend in homeownership has come to an end. This will help to absorb some of the pent up demand currently in the market."
Other industry insiders say home construction should take off across the board, as the economy improves. "The residential building industry continues to recover, especially in the Midwest -- one of the hardest hit economies in the U.S. during the last recession," says Albert Benaderet, founder and CEO of Crystal Homes Inc., in Detroit. "Today, as demand increases, so will home prices. Additionally, mortgage costs will adjust accordingly as predicted in the positive economic forecasts for 2016. As long as there is demand, the building industry will grow, and if we remain in a recovery, then buying a home will be a good investment."