This is my special edition of real estate industry trends for 2016. The first edition went unpublished because they were so accurate and spot on, that even I was concerned as to how prophetic a real estate professional can be about such matters.
Case and point: Though unpublished, my predictions for 2015 were far better than one could have anticipated, but I guess you’ll have to take my word on that.
This was especially so because Federal Reserve Chairman Janet Yellen pulled a Babe Ruth in December by stepping up to the plate and raising interest rates, but not before pointing up to the far bleachers to signify an approaching homer for all the bond holders out there who said it couldn’t be done.
This year, I’ve ensured equal if not better results by researching my premonitions thoroughly and consulting the experts. And although it’s the standard fare among those that are “in the right” about all matters real estate related, my edict will not contain the ominous 13 predictions — but rather a lucky seven — because that was the same number value of last year’s.
And like an athlete that doesn’t change his jock strap on a winning streak (which will eventually result in a visit to dermatologist), this real estate writer will not change course.
Let it be known that that this one is for all the naysayers out there who believe in negative amortization and who doubted the resurgence of American real estate. Here are my seven predictions for 2016, with a little help from a few experts.
1. The hot market for 2016 (and the Miss America runner-up)
Hands down, Miami is an international designation for vacationers and has become a world class resort community, attracting home and condo purchasers from all over the world. If there’s ever been a time to buy housing in Miami in this decade, chances are this is it.
The runner-up? Well according to the housingpredictor.com, it’s San Francisco. Big hooray! In the opinion of some, it is the rich diverse cultural mix of people that has transformed the greater Bay Area into a world-class city over the many decades — and who have made it home.
There are more millionaires housed out on that peninsula than anywhere else in the U.S., and it doesn’t hurt that a majority of buyers are paying all cash for homes.
2. Those goddamn millennials
I always go to the horse’s mouth on points that are best left to the real estate researchers out there. I’ll leave this one to Svenja Gudell, recently appointed chief economist for the housing site Zillow.com:
“Millennials are going to be bigger and bigger buyers in the market going forward,” Gudell said. “I don’t think next year we’re going to see a flood of millennials in one month or another. They’ll just trickle in. They’re taking their time getting to the market and buying a home. They’re getting married later on in life. They’re having children later on in life. So they’re making home-buying decisions later on in life.
“One issue is that inventory is very low, especially on the bottom end of the price distribution. There are very few of those available, especially in these markets that have the most jobs. That’s particularly the case on the coasts. It’s a challenge for them. It’s a tough market. There is a lot competition.”
3. When bigger is kinda, somewhat but not really better
In the interest of giving Gudell a little bit more air time, this is her take on the whole bigger is better thing when it comes to whether homes will get smaller or larger — or if lots will change in size.
“It’s tough with how few new homes are available, but there is a trend among builders to build larger homes on smaller lots. Land is fairly expensive so they are trying to maximize their profits given the high land costs,” she said.
4. Expect the ‘new normal’ to be normal
Another economist has to chime in where Gudell from Zillow.com left off, and that’s Jonathan Smoke, realtor.org’s chief economist, who believes the following:
“This slowdown is not an indication of a problem — it’s just a return to normalcy. We’ve lived through 15 years of truly abnormal trends, and after working off the devastating effects of the housing bust, we’re finally seeing signs of more normal conditions.”
New construction and distressed sales are expected to return to more historical levels, and home prices are expected to follow at rates consistent with a more balanced market.
5. Drones to be grounded
Technically speaking, if you’re a real estate agent, you still need a Federal Aviation Administration (FAA) license to photograph homes for marketing purposes. To date, there has only been one real estate broker who can photograph properties with a drone, and that is a Douglas Trudeaut from Tucson, Arizona.
He’s the first agent to receive an exemption under the FAA’s rules allowing a real estate professional to take pics.
Will 2016 be any different for tech-savvy agents who are just itching to let loose on their newly bought Radio Shack drone?
Probably not, but you can bet that the National Association of Realtors (NAR) will spend a few more bucks when they start to lobby the chairman of the FAA in 2016.
6. Mortgage rates — boring!
Mortgage rates will likely be volatile in 2016. But the recent move by the Federal Reserve to guide interest rates higher should push mortgage rates above the historical lows they have been at for years — all according to industry professionals, of course. The 30-year fixed-rate mortgage will likely end 2016 about 60 basis points higher than today’s level.
“That level of increase is manageable, as consumers will have multiple tactics to mitigate some of that increase,” Smoke said.
However, higher rates will drive up monthly payments, and, along with that, debt-to-income ratios will also increase. The markets with the priciest homes will be most affected by the higher rates.
Most mortgage interest rate divas out there (guys and gals alike), are predicting chaos in 2016. If you call 50 to 60 basis points chaos, then I’ve got some real estate in Florida I’d like to sell you.
For those who are not certain what 50 or 60 basis points is, it’s about half a point higher in your mortgage rate (100 basis points is 1 percentage point). Thus, given the market average for a fixed 30-year home mortgage is about 5 percent, we can expect that the prevailing rate in December 2016 will be about 5.5 percent.
7. Fannie Mae brings home the bacon
We’ve all heard of quantitative easing (I think). Well then don’t expect a return to the 2000s, when all you needed was a heartbeat and a zero down payment to close on a home.
In 2016, there are new loan programs afoot that make qualifying for a loan a bit easier. According to The Street, Fannie Mae intends to make it easier for qualified borrowers to receive a loan. Industry-wide mortgage underwritings are starting to reflect the improvements.
To complement this trend, Fannie Mae recently opened the door for more borrowers to receive a loan. Qualified borrowers are now able to put as little as 3 percent down on a home.
Perhaps even more importantly, however, is the implementation of the HomeReady mortgage program. Look for that program to be adopted by some of the largest banks in 2016.
In the final analysis, there are many economic fundamentals and non-fundamentals that will affect the trajectory of home prices, trends, technology and lender practices in 2016. I’ll tell you in 2017 if all that was true.
D. Sidney Potter is a contributing writer for several online periodicals, such as The Huffington Post, iReports CNN and Demand Studios. He believes someone should start an organization called, Real Estate without Borders.