As the year 2015 comes to an end, our small portion of the world (South Florida), as well as most of the nation, is looking at a lack of housing inventory, especially for first time home buyers in the $450,000 and under category.
- The real estate outlook for 2016 does not look like it will improve that particular situation markedly.
- The FED has earmarked interest rates for an increase. While that will not substantially change the rate of 30 year mortgages, it may change the outlook of many homeowners who were thinking about selling before the rate rise.
- First time home buyers, while getting older and decreasing slightly in number, may find that credit is a little easier to get.
- Rental rates are likely to increase because there’s too much demand – young families cannot afford to buy. So they have to rent. Lack of affordable inventory is pushing prices up for renters and buyers.
- Income will not keep pace with home price inflation. While home prices will move upward at a more leisurely pace – the expectation among economists is 3 – 4.5% – wages will not match that increase. Therefore, saving to purchase a home will remain a high hurdle to many prospective buyers.
- South Florida home values will rise at a rate somewhat above the expected average.
That’s a synopsis of the year’s predictions. For more detail, please continue.
Life will remain difficult for first time buyers. Wages are not keeping pace with home price inflation and high rents eat into savings ability. Investors, virtually all of whom were cash buyers, helped push affordable housing into a higher price bracket. Now that home prices have pushed margins down, investors are withdrawing. However, what’s left for the majority of homebuyers are homes whose prices are beyond their income range. That means they need more time to save for a downpayment.
As a result of this, the first time home buyers are growing older. In 1975 the average first time buyer was 29. According to Forbes, that age had moved up to 33 by 2015. Based on a tight market and lack of wage gains, the age of that buying group may end up with a couple of additional birthdays tacked onto it.
On the bright side, lending standards have eased slightly. Federal Housing Administration (FHA) loans have decreased private mortgage insurance (PMI) rates, but still require a down payment as low as 3.5%. According to a statement from the Federal Housing Finance Agency (FHFA), Freddie Mac and Fannie Mae will allow down payments of as low as 3% on conventional home loans.
In addition, Fannie Mae has announced the HomeReady program. This innovative lending strategy permits income from household or family members, who are not on the mortgage – or from co-borrowers who will not live in the house – to be used in computing a borrower’s financial qualifications toward home purchase.
On the darker side, interest rates will increase. The FED has promised to raise rates throughout 2016. Most economists expect them to follow through. What that means for home buyers, says the Mortgage Bankers Association, is that the 30 year fixed rate loan, currently running around 4 %, is likely to rise to at least 4.5% by the end of 2016.
This will not dim the enthusiasm of committed home buyers, because rates will still be very low.
Higher rates will decrease seller enthusiasm and keep inventory tight. Because many current homeowners either purchased at very low mortgage rates, or refinanced in the last three years at rates well below 4%, may will be reluctant to sell their homes.
If they sell and need to get another mortgage, they may well be taking out a new loan at a point to a point and a half higher than the amount they are accustomed to paying. If the sellers are older and working from fixed incomes, staying put at a lower mortgage rate may be the best lifestyle choice.
Rental Rates will continue their trend upward. There are too many young people and not enough places for them to live, even when it comes to rental property. That means it’s a good time to be a landlord. In our area, Broward County rents increased more than 7% between 2014 and 2015 and almost 8% in Palm Beach County. A Department of Housing and Urban Development (HUD) analysis suggests that average rents will increase by at least 3.5% in much of the nation.
Unfortunately, the Washington Post indicates that wages, along with the Gross Domestic Product, increased at a pace of only 2%. All of which makes housing relatively less affordable, whether its rented or purchased.
It’s may still be cheaper to buy than to rent. This figure is based on average monthly carrying costs. But in order to achieve that lower monthly carrying cost of ownership, it’s necessary to save enough money for a house down payment. High rents are delaying the ability to save.
However, despite lack of wage gains and tight inventory, (right now just a 2 month supply of homes), almost 58,000 people purchased homes in Palm Beach County during the last 12 months.
In addition, the National Association of Home Builders reported a 4.3% average increase in sales of new single-family homes in November. On a regional basis, this works out to a big plus of 20.5% in the West, a small bounce of 4.5% in the South, with a big decline in the Northeast (28.6%) and a milder decline in the Midwest (8.6%).
The increased demand is a result of new households that are forming as Millennials leave their parents’ homes behind.
Fortunately, even though the housing market may be tough, there will always be home buyers and sellers who are willing and able to meet its ongoing challenge.
If you’re one of them, and you’re thinking of buying or selling a home in 2016, please call us at 561-213-6139.
New Harbor Realty