Rising home prices may have slowed, but affordability with a dwindling supply of homes is expected to remain a stumbling block for many prospective home buyers in 2016, U.S. housing experts say.
Real estate economists expect the U.S. housing market to continue downshifting from a phase fueled by investors and cash buyers to a more stable market with modest home value growth and slightly higher mortgage rates. Here are the top predictions for 2016.
1) Prime mortgage rates will go up.
The Federal Reserve Bank closed 2015 by hiking the Fed interest rate a quarter of a point on December 16 – the first rate increase by the Fed since June 2006
U.S. real estate economists say the impact of a quarter point hike will only slightly impact traditional mortgages.
“An eventual increase of the prime rate won’t affect the 30-year mortgage rate by much,” said Nela Richardson, chief economist for Redfin, an online real estate brokerage firm.
For a home buyer, purchasing a single family home for $400,000, an increase of quarter point with a 30-year mortgage would be around an extra $50 a month in mortgage payments. Most buyers in the position to able to put down a payment and secure a loan to buy a home will not deterred by the small increase, Richardson says.
“Even if rates go above 5%, people will still buy," he said. "A 5% rate isn’t a turn off.”
2) Prices will continue to rise, but with sluggish growth in sales.
Housing price gains slowed toward the end of 2015. But rising mortgage rates coupled with growing home prices, which are outpacing wages, are expected to hold back home sales.
“This year the housing market may only squeak out 1% to 3% growth in sales because of slower economic expansion and rising mortgage rates,” said Lawrence Yun, chief economist at the National Association of Realtors, in a January 12 statement. “The continued rise in home prices will occur due to the fact that we will again encounter housing shortages in many markets because of the cumulative effect of homebuilders under producing for multiple years.”
Yun predicts that home prices in the U.S. will grow between 5% and 6% this year.