One firm’s outlook on housing in 2016
BPC Staff Dec 9, 2015 | 9:31 pm
2 min read time
403 wordsAll Latest News, Real Estate and DevelopmentReal estate analytics firm CoreLogic Inc. predicts that home sales and prices will increase, rents will rise and vacancy rates will remain low in 2016. Here is the firm’s outlook and reasoning:
- Interest rates will move higher. Homeowners who have adjustable-rate mortgages or home-equity loans will most likely see a rise in their interest rate because the Federal Reserve is expected to raise short-term interest rates approximately one percentage point between now and the end of 2016. Fixed-rate mortgages will also rise, perhaps up to one-half of a percentage point between now and the end of 2016, reaching 4.5 percent for 30-year loans. Despite this increase in interest rates, mortgage rates will remain historically low.
- Household formations will add to housing demand. More than 1.25 million new households will be formed in 2016 due to improvements in the labor market and lower unemployment rates. These new household formations will increase housing demand, specifically in the rental market.
- Rental homes will continue to be in high demand. Rental vacancy rates are at or near their lowest levels in 20 years, and rents are rising faster than inflation. High demand for rental homes – both apartments and houses – will likely continue in 2016, especially from new, young households.
- Home sales and home prices will increase. Not only is the rental market hot, but overall purchase demand may lift 2016 home sales to the best year since 2007. Nationally, home prices will likely rise at a quicker rate than inflation, but not at the same rate as last year. The CoreLogic Home Price Index showed a year-over-year increase of 6 percent in the last 12 months; however, 2016 is only expected to see increases of 4-5 percent. This increase in home sales and home prices can be attributed to the improved economy.
- The dollar volume of single-family mortgage originations will fall approximately 10 percent. The single-family mortgage origination decline will occur even though home equity lending is expected to rise and originations of home purchase loans will likely rise about 10 percent in volume next year. The growth in those two areas will be offset by a 34 percent drop in refinance, reflecting the higher mortgage rates and dwindling pool of borrowers with a strong financial incentive to refinance. While single-family mortgage originations are expected to fall, multifamily originations will likely rise. This gain reflects the higher property values and new construction that adds to permanent mortgage usage.
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