4 PREDICTIONS FOR THE 2016 HOUSING MARKET

Economists are hopeful that housing market activity — and prices — will continue to perk up generally in 2016, due to a number of factors. The most important catalyst for housing would be an improving economy and employment landscape. As Americans feel more confident about the economy and more secure in their jobs, they will be more likely to take the big step of home ownership.

 

 

 

#1 Where will Interest Rates Go?

The federal reserve decided to raise the overnight rate in December of 2015. This means that it just became a bit more expensive for the banks to lend you money. With that in mind, one would expect rates to have increased since this decision. In fact, the opposite is true. Due to the struggling stock market and oil prices rates have actually gone down. As of today (2/1/2016) rates are at about a 3.85% (4.0% APY) on a 30 year fixed mortgage. Compared to the historical average interest rate of 8.51%, we are very spoiled right now. We are hoping they stay under 4.5% for the rest of the year.

 

 

#2 What about home prices?

Every January Fannie Mae puts out a large housing forecast power point that we lenders use to get an estimate on the upcoming trends. According to this year’s report they estimate median home values to increase by 5%. That is great news for home sellers, but not necessarily for buyers. The good news is, if you sell your home for more and then buy your next home for more, it should all come out in the wash.

 

 

#3 Boomerang Buyers

One interesting group that may drive the market are the “boomerang buyers” — homeowners who lost their homes during the recession and are ready to jump back into the market. Some 7.3 million Americans lost their homes to foreclosures or short sales — two events that can stay on your credit report for up to seven years — from 2007 to 2014, according to real estate data company RealtyTrac. If they have no other major credit issues lingering, those first foreclosed owners are now coming out of the financial doghouse and qualify for a mortgage. RealtyTrac projects that 250,000 to 500,000 boomerang-ers will come back into the market this year, with another million or so more in the next few years.

 

#4 Millennials finally entering the market

To be sure, many millennials remain cautious about making big investments. As is the case with other groups, they were chastened by the declines of the Great Recession.However, this group also represents untapped potential. The millennial home-buying momentum should pick up. Expect millennials to make up a greater share of buyers and to boost the home-buying market.

The consensus among experts has been that millennials would stimulate the housing sector. A majority of those born roughly 30 years ago are starting to realize their financial aspirations, and simultaneously entering their peak home buyer age.

 

 

There is much more to a housing market than these items, but the Southern Utah Real Estate community generally agrees that this year we can look forward to a slight increase in prices and historically low interest rates.More than seven years after one of the worst recessions in our history, the U.S. housing market appears to be on firm ground again. Despite some recent hiccups, it is likely that it will carry the momentum it gained this year into next.

GET A MORTGAGE OR PAY CASH FOR YOUR NEXT HOME?

WITH MORTGAGE RATES BELOW 4%, MORE AND MORE PEOPLE ARE WONDERING IF THEY SHOULD JUST GUARD THEIR SAVINGS AND GET A MORTGAGE ON THEIR HOME. LET’S EXPLORE A FEW PROS AND CONS OF GETTING A MORTGAGE:

 

 

  • Pro – The two big reasons to take out a mortgage even if you can afford to pay cash are maintaining liquidity and maximizing returns. Paying all cash, while commendable, isn’t a good idea if it means committing too much of your savings to an asset that is inherently illiquid. You don’t want to get into a situation where you are forced to sell the house or other investments at the worst time possible.

 

  • Con – On paper, getting a mortgage and using your cash to invest may seem like a better deal. What that equation doesn’t account for is the enormous sense of satisfaction that comes with owning your home outright. No one can put a price on peace of mind. Odds are that you will make more over the long run investing those funds, but what you save on interest over the life of the loan – tens of thousands, if not hundreds of thousands of dollars – isn’t vulnerable to market ups and downs.

 

  • Pro – Using your mortgage as a tax strategy. We often see clients that could pay cash for a home and have plenty to spare. What we are finding is that a lot of those buyers are acting under the advice of their accountants. Accountants know that you can use mortgage interest to help reduce your annual tax liability.

 

  • Con – Cash empowers you to make a better deal. When making an offer on a home, cash talks. If you are able to close quickly without the need for financing, you are often a sellers’ first choice when they have multiple offers.

When it comes to finances there is no right or wrong answer that fits everyone’s financial situation. Go with your gut, speak with a trusted accountant or financial advisor. Remember, you can always go for the middle ground, and for many buyers this may be the best option of all. Take out a mortgage and lock in today’s historically-low rates, but make more than the minimum payment whenever you can.