Housing Market 2016
2015 was definitely a strong year for real estate – house prices and demand had increased sharply and some parts of the country have had hard time keeping up with the demand.
The two most important housing market 2016 trends to watch will be the continued growth of rental rates and the moderating trend in home prices. More households have been choosing to rent over buying in 2015, and this trend will continue in 2016.
In addition to driving rental prices up and vacancy rates down, this trend disengages an increasing proportion of potential home buyers — evidenced by the lowest homeownership rate in almost 50 years.
Housing Market 2016:
The housing market 2016 is closely driven by underlying economic fundamentals–job growth, incomes, household formation.
I would like to point out a few facts that are part of the housing market 2016:
- Mortgage rates are increasing – however the new 3 percent down payment products coming from Fannie Mae and Freddie Mac (Conventional 97) should have a positive impact on the market as they enable more first-time buyers who have good credit but limited assets.
- First-time home-buyers, in particular, should have an easier go of it. The Federal Housing Administration, the government agency that primarily helps first-timers get mortgages, cut its fees last year and may do so again soon as its finances continue to improve. The credit scores that borrowers need to get a loan are still very high by historical standards, but they have finally begun to normalize.
- Rental demand and rents continue to rise strongly in most parts of the country. The problem is that demand for rental units has been overcoming supply, and vacancy rates are now about as low as they have been in 30 years. Fueling demand are the millennials (Generation Y) who are finally finding jobs and striking out on their own, along with households that have lost their homes in foreclosure, and more empty-nesters looking to downsize and simplify.
- Property values have already surpassed the levels of 10 years ago – according to the Federal Housing Finance Agency, median house prices had already reached the same levels as of the end of 2006 (just before the housing crisis) as of summer of last year. Now these levels are already 3% higher than last summer.
- Global geopolitics are actually helping US economy and housing market 2016 – economic weaknesses in China and Europe (Euro Dollar) are actually helping the US average homeowner to access mortgage products at competitive rates and facilitating borrowing power. The global economic situation is helping keeping mortgage rates at lower than average levels.
What does this all means to the real estate investor and what are the best strategies to get into this housing market 2016?
Buy and Hold, and Fix and Flip, are again probably the most lucrative strategies for 2016.
Wholesalers (or Flippers) investors are highly needed to find those undiscovered properties that are sitting there waiting for a rehabber or a landlord. A lot of homeowners have moved on for a variety of reasons, and many properties are vacant, free and clear (no existing mortgage) or foreclosed waiting to be put back in circulation.
There is also a definite abundance of cash investors (“cash” meaning liquid funds, from savings to IRA or retirement accounts.) A lot of private investors have made a choice to invest in real estate over types of investments like stock and money markets. Either they want properties to either own as part of their portfolio or loan their money out to a rehabber by creating a joint venture partnership.
Choosing the right strategy depends on where you are as an investor, financially and experience wise. If you are new to real estate, wholesaling is your best option. There is a learning curve as you get into the business (how to find properties, analyzing deals, negotiation skills, etc.) that you learn with minimum risk in wholesaling. Soon enough you can add strategies like buy and hold or fix and flip.
The housing market 2016 is definitely going to be a strong real estate market. Make the most of it!