It's been a great year for real estate, both nationally and in our own Sacramento region, but what will 2016 hold? Here are five more trends that analysts, economists, and housing experts expect to see this coming year. To read part one of this blog with trends one through six, click here.
6. Interest rate rise stabilizes growth
6. Interest rate rise stabilizes growth
We all know by now that the Fed just raised their benchmark rate by .25 points, which will bump up mortgage interest rates slightly, but that’s not bad news at all. In fact, the Fed is raising rates to temper inflation and slow growth since they see so many positive economic factors, like job numbers and housing. Interest rate increases will be gradual and aren’t expected to hamper buying since any increase will also mean the economy is healthier and jobs and wages heading in the right direction. No matter what, interest rates are still historically so low and the cost of buying is far less than renting in most areas.
7. City living in large metropolitan markets has seen its zenith
The cost of living, housing, and real estate in some large cities like Boston, New York, San Francisco, San Jose, Seattle, etc. have become prohibitive, driving some out of the cities or in search of suburbs or “second cities” that are still affordable. While urban living is still attractive to many Millenials and other young couples, as they age, they’re expected to head out to the suburbs. There, they’ll find lower housing prices, better values, and a better place to raise families. At present time, 37 percent of Millenials prefer living in the city versus 29 percent who prefer suburban living, but that number has shrunk, and faced with the choice of either staying an urbanite or being able to buy a house and move to the next stage of their life in the suburbs, the number of those 80 million Millenials who make the latter choice will be significant.
8. Location, location, bike trails and walking?
The suburbs may see a new influx of migration, but today’s young buyers will be looking for different amenities than their parents and grandparents did. Millenials, young buyers, and new suburbanites would love to recreate some of the access, convenience, and culture of city living, but in their own quieter neighborhoods. That means parks, bike trails, neighborhood markets, cafes, and restaurants, and easy access to trains and light rail for commuting without driving. Builders are keeping this in mind, creating “pocket” communities within greater suburbs for new homeowners to work, play, and raise their families without traveling far.
9. More loan products open the door for homeownership
Even as interest rates rise slightly, lending will be healthy in 2016, invigorated from a diverse new set of mortgage loans introduced into the market that will grant access to new homebuyers. As many Americans can now afford the monthly payment for a home but can’t scrape together the sizable 20% down payment traditionally needed to buy, there will be an array of purchase loans with less money down. In fact, Fannie Mae now has a loan that allows for multigenerational families to spread the cost of homeownership by counting income of boarders or renters and other family members. Likewise, Fannie Mae FNMA and Freddie Mac beginning to purchase loans with only 3% down payments, or 97% loan-to-value products, which is expected to greatly boost access to those loans, as now only about 11% of the mortgage market is comprised of loans with down payments of 3% or less. In all, the Mortgage Bankers Association predicts that new mortgage originations will rise to $905 billion in 2016, up from $821 billion in 2015, an encouraging sign.
10. The West will still be the best
In 2016, we’ll continue the trend set in 2015 of the largest gains in home prices concentrated in the western part of the country. From Denver to San Francisco, Austin to San Jose, Salt Lake City to Seattle, and many points in between, year-over-year gains were up to or exceeding 10% in major western cities in 2015. While those numbers may adjust back down to earth a little in 2016, analysts still expect the best gains for equity in the left half of the country.
So what’s our prediction for Sacramento?
Based on all of these ten factors we laid out and the economic climate of the greater Sacramento region, we predict that single-family home sales will increase by about 6-7 percent in 2016 over this year, and the median home sale price will increase by 7-10 percent.