This is my special edition for real estate predictions for 2016. The first edition went unpublished since they were so accurate and spot on, that even I was concerned as to how prophetic can a real estate professional be about such matters! Case and point: My predictions for 2015 were far better than one could have anticipated. This was especially so, since Federal Reserve Chairman Janet Yellen pulled a Babe Ruth two weeks ago, 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 naysayer bond holders out there who said it couldn’t be done.
And although the standard fare amongst those that “in the right” about all matters real estate related, my edict will not contain the ominous thirteen predictions — but a very lucky seven predictions — since that was the same number value of last year’s predictions.
And like an athlete that doesn’t change his jock strap when on a winning streak (that will eventually result in a visit to dermatologist), this real estate writer will not change course and deviate from seven predictions. A re-peat if you will, as I point to the stands… and let it be known that this one is for all the naysayers out there who believe in negative amortization, and that doubted the resurgence of American real estate.
Prediction One: Thy 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. Well that’s no surprise, and given that there are more millionaires housed out on that peninsula than anywhere else in the U.S., and doesn’t hurt that a majority of buyers are paying all cash for homes.
Prediction Two: Those Goddamm Millennials
Why not go to the horse’s mouth when you’re trying to prove a point on a calculation that might be best left to the real estate researchers out there. Such is the case with Mrs. 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. 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.”
Prediction Three: When Bigger is kinda-somewhat-but-not-really Better
In the interest of giving Mrs. Gudell a little bit more air time, this is her take on the whole bigger is better thing when it comes to whether or not homes will get smaller or bigger — or whether the lots will get bigger of smaller? “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.”
Prediction Four: Expect the “new normal” to be normal
Another economist has to chime in where Mrs. Gudell from Zillow.com left off, and that’s Jonathan Smoke, realtor.com®’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 “more normal rates consistent with a more balanced market.”
Prediction Five: Drones to be grounded
Technically speaking, if you’re a real estate agent, you still need a 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, AZ, the first agent to receive an exemption under the FAA’s rules allowing a real estate professional to take pics.
Hence, will 2016 be any different for tech savvy realtors that are just inching 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.
Prediction Six: Mortgage rates —- Booooring!
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 higher in the new year than the historical lows they have been at for years — all according to industry professional of course. The 30-year fixed-rate mortgage will likely end 2016 about 60 basis points higher than today’s level.
This according to Jonathan Smoke of the NAR. “That level of increase is manageable, as consumers will have multiple tactics to mitigate some of that increase. However, higher rates will drive monthly payments higher, and, along with that, debt-to-income ratios will also go higher.” The markets with the highest home prices will see the effects from the higher rates the most.
Most mortgage interest rate diva’s 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% percent point). Thus, given the market average for a fixed 30-year fixed-rate home mortgage is about 5 percent, when can expect in December 2016 that the prevailing rate will be about 5½ percent.
Prediction Seven: FannieMae brings home the bacon
We’ve all heard of quantitative easing (I think). We’ll then don’t’ expect a return to the 2000’s, were all you needed was a heartbeat and a zero down payment to close on a home. In 2016, there are new loan programs that are afoot that make qualifying for a loan a bit more easy. According to TheStreet.com, 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 compliment 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% down on a home. Perhaps even more importantly, however, is the implementation of the HomeReady mortgage program. Look for more of 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, and technology and lender practices in 2016. I’ll tell you in 2017 if that was true.