- As the new year approaches, economists are getting detailed with their 2016 predictions.
- An improved macroeconomy will result in rising home prices, according to CoreLogic.
- While single-family home originations will decline, we'll likely see a gain in multifamily lending, which reflects higher property values and the completion of new housing.
With the countdown to the ball dropping on the end of 2015 a little more than a week away, economists are predicting that economic growth will continue in 2016 as the country enters its eighth consecutive year of expansion, according to CoreLogic’s MarketPulse report for December.
Most forecasts place growth at between 2 percent and 3 percent during 2016, creating enough jobs to exert downward pressure on the national unemployment rate. If positive economic conditions do prevail in 2016, we will likely see these five features in next year’s housing market, according to CoreLogic’s predictions.
1. Higher interest rates — for all loan types
Last week, as anticipated, the Federal Reserve raised interest rates by 0.25 percent, its first rate hike in almost nine years. According to CoreLogic, higher short-term rates will mean that homeowners who have adjustable-rate mortgages or home equity lines will likely see a rise in their rate.
Fixed mortgage rates will likely also rise, perhaps up one-half of a percentage point between now and the end of 2016, reaching 4.5 percent for 30-year loans. Even after this growth, mortgage rates will remain historically low, more than a full percentage below the average rate during the recession.
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2. Increased housing demand
Household formation has been a bit sluggish for a few years, particularly among millennials, who tend to put off marriage or starting a family until their 30s. But improving labor markets should propel an acceleration in the formation of new households next year, said CoreLogic, which predicted that we could see more than 1.25 million new households formed in 2016.
3. Inflation that outpaces rent levels
Demand for rental homes — both apartments and houses — is so strong, rents are rising faster than inflation, and rental vacancy rates haven’t been this low in 30 years. CoreLogic said these market conditions will continue in 2016, particularly as newly built apartments are absorbed by new young households.
4. Growing home sales and prices
With the improved macroeconomy brightening the financial outlook for many families and enhancing their sense of financial security, the owner-occupied housing market will likely see an increase in home sales and house prices. The CoreLogic Home Price Index rose about 6 percent in the last year, and could rise by 4 to 5 percent during 2016, CoreLogic said.
Overall purchase demand may increase home sales in 2016 to the highest levels since 2007. Appreciation in national home price indexes will likely continue at a faster pace than inflation, but grow more moderately than last year.
5. Declining single-family mortgage originations
Overall, single-family mortgage originations will fall about 10 percent in 2016 compared to this year, while multifamily originations will likely rise, CoreLogic predicted. The decline in single-family loans will occur even though originations of home purchase loans will likely rise about 10 to 12 percent in volume next year.
However, growth in these two segments will be swamped by a more than one-third drop in refinancing, reflecting the higher mortgage rates and dwindling pool of borrowers with a strong financial incentive to refinance. The gain in multifamily lending reflects the higher property values and completion of new buildings that add to permanent mortgage usage.