Our 2016 Predictions
There’s been a lot of buzz surrounding the rise, if any, to interest rates and a pending slowdown in the real estate market. When we think about this in the historical perspective, we’ve had about 15 years of abnormal trends. A slowdown isn’t necessarily an indication of a problem but rather a return to normalcy.
The real estate market is largely reactionary, and 2016 is bound to give us a lot of reactions. We may react to higher interest rates with easier lending practices, or to higher rental rates with home purchases, or even affordability of new construction given last years poor performance of high-priced new homes.
Alternative Ways to Determine Credit Worthiness
The new Credit Score Competition Act of 2015 introduced Thursday to the House of Representatives would would let Fannie Mae and Freddie consider other credit-scoring models other than the FICO credit score currently used when determining what loans to purchase. For borrowers who lack traditional forms of credit, this could level the playing field and make it easier for them to buy a home. Potential homebuyers without a FICO score or with a FICO score below 620 are deemed ineligible for a mortgage that can be backed by Fannie or Freddie. This new bill could lend alternatives to FICO score, that would take into account something as simple as whether borrowers paid their rent on time, or paid their utility bills on time. Alternative factors to establish credit worthiness in 2016 could broaden the market to include a new demographic that was once frozen out of it.
More First-Time Buyers
We’re predicting first-time buyers to make up a bigger share of the market than they did this year. Slowing price growth and easier access to loans could welcome potential buyers, buyers that have been holding off on taking the plunge over the last few years for various reasons. Rental rates are skyrocketing, and the cost of renting is only slated to rise. Many have rents that exceed 30 percent of the income of renting households, making a home purchase as the more affordable option. More first-time home buyers include young adults between 25 and 34, who made up 2 billion sales in 2015 and are expected to be a major buying pool in 2016.
More Affordable New Construction
New home construction was one of the hardest hit sectors after the fall of the housing market. Faced with higher land costs, limited labor, and concerns about demand, developers scaled back nearly 80 percent of their product. As such, builders shifted to constructing more higher-priced homes. In 2016, we’re likely to see a shift to more affordable product, catering to entry-level buyers, and we’re already seeing a decline in new-home prices. We’re also likely to see a larger inventory of new-homes, which are expected to rise by 23 percent. This broader scope of inventory could coincide with healthy sales of new-homes.
The one constant that will remain in the new year is our commitment to quality care and expert service. Contact one of our agents to find out what GreenTree Properties can do for you in 2016.