Housing Market Predictions for 2016

In 2015, the housing market saw prices continue their climb from where they were a few years back. There’s no telling what exactly 2016 has in store for us, but there’s no denying it’s gotten off on the wrong foot.

Depending on who you talk to, the current problems are either a temporary setback or indicative of things to come. Covering both ends of the spectrum, here are a few things that may–or may not–unfold in the 2016 housing market:

Rising housing prices
Svenja Gullen, Chief Economist at Zillow, and self-proclaimed optimist believes that housing prices are set to rise 3.5 percent in 2016. That’s slightly down from 2015’s nationwide average of about 4 percent. Of course, local markets can vary drastically with their performances, and there will no doubt be cities that will outperform the national average. Denver, Dallas, Miami, Seattle, and Pittsburgh all seem poised to do just that. Zillow has the following as their top 10 housing markets for 2016:

    Denver
    Seattle
    Dallas-Fort Worth, Texas
    Richmond, Va.
    Boise, Idaho
    Ogden, Utah
    Salt Lake City
    Omaha, Neb.
    Sacramento, Calif.
    Portland, Ore.

Rent will go up

Rent.com released their 2015 Rental Market Report, and it doesn’t paint a pretty picture for renters. According to the report, vacancy rates are the lowest they’ve been in almost twenty years. That means demand is high, resulting in little wiggle room when negotiating the price of rent. It doesn’t help when property managers are eager to get after the benjamins, with 88% saying they raised their rent in the past 12 months.

The report also showed that 68% of property managers believe that rising rent will continue in 2016, with an average of 8%. Keeping up with constantly rising rent can be a battle when your income isn’t increasing at a similar rate, which is exactly what’s been happening.

Eager home buyers will continue to struggle

The NAR’s Housing Opportunities and Market Experience (HOME) survey shed some light on the desires of prospective home buyers in 2016. It showed that 94 percent of current renters who are 34 years of age or younger want to own a home in the future. Out of all renters, 83 percent said they have a desire to own, and 77 percent think that homeownership is part of their American Dream.

The inability to afford to buy was the top reason for not currently owning (53 percent), followed by the flexibility of renting as the second most popular reason (19 percent). Lifestyle decisions such as getting married, starting a family or retiring were cited as top reasons for shifting to owning at 33 percent, and improvement in their financial situation came in second at 26 percent.

The clear takeaway from all of this data is that people want to own homes, it’s just difficult to make the dream a reality–especially for young buyers. With wages barely rising and rent soaring, it can be incredibly difficult to put money away for a down payment. It’s particularly burdensome for borrowers who are already struggling with high student loan debt.

The economy will falter

Of course, there are some outliers that do not think the U.S. economy is as strong as the pundits and politicians lead everyone to believe. While most people are blaming foreign affairs for our recent domestic stock market troubles, a few are saying that the cause is actually the Fed’s decision to raise interest rates last month.

They claim that because the Fed’s free money is no longer propping up the markets, the economy is slowly sinking down to its true form. In this scenario, the Federal Reserve is forced to backtrack on its commitment to raise rates, and will ultimately have to cut rates. Home prices could take a hit if the situation got bad enough. This would be terrible news for homeowners. Will it happen? Unfortunately, we’re forced to wait to find out.

source: totalmortgage.com

Are Single Family Rentals Still a Good Investment?

With discount-priced foreclosures drying up, are single family rentals still such a good investment?

The foreclosure floods over past four years created unprecedented opportunities for investors to buy homes for a song, rehab them, and either resell or rent them out. Some four million homes switched from owner-occupancy to rentals during that period—that’s nearly homes as many as total sold in America each year.


The market is changing

Those days are clearly over. The flow of foreclosures and short sales has dried up, accounting for only 10 percent of the market. Today investors are buying only about 14 percent of residential sales, down from 25 percent in 2009. Yet new investors are still entering the single family rental market and about 14 million homes are now rentals.

The reason can be summed up in two words, “cash flow.” Few investments deliver two ways to profit, but the attraction of single family rentals is that they deliver monthly rent while they appreciate in value like other residential properties.

Today’s market dynamics are a good example of why millions of investors are sticking with their rentals despite the changing market. Though the days of quick profits from flipping are over, the appreciation side of the equation is still strong. Those investors who bought in during the housing crash have done very well, realizing 20 to 30 percent appreciation. Their profits are being augmented by the nationwide shortage of affordable starter homes, which is pushing prices in lower tiers up faster than any other segment of the market. Most rentals are two bedrooms or smaller.

The best news for investors is on the rental side

Rents are soaring and vacancy rates declining, making it easy for landlords to keep their properties rented, and their rental income is even outpacing inflation. In the nation’s hottest real estate markets—Denver, Dallas, San Francisco, San Jose—rents are rising fastest, keeping pace with home price appreciation. Thus, there’s little incentive for renters to buy. Even in moderate markets, Millennials are creating extraordinary demand for rentals.

It’s easier than ever for investors to add a rental property to their portfolio. Companies like Memphis Invest and HomeUnion provide turn-key service to investors, locating and buying properties, arranging financing, and managing.

“There are an increasing number of renters in the U.S. We believe this increasing demand for residential rental space will enable SFR investments to continue producing high yields,” says HomeUnion CEO Don Ganguly.

What does the future hold?

The rental boom’s days may be numbered, though. A corresponding boom in apartment construction is underway, adding 300,000 to 400,000 new units to the rental inventory each year, most in markets popular with Millennials. The flood of new apartments is expected to slow rent growth to 2 or 3 percent per annum in the next two years, but as long as occupancy rates remain favorable, investors in single family rentals should continue to do well.

source: totalmortgage.com