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Home Buying for 2016
Home buying in 2016 will remain challenging for many borrowers. But the market should look closer to normal, as more homeowners who had been stuck underwater reach the surface and more first-time buyers find their financial footing.
HOME PRICE APPRECIATION WILL SLOW
Industry experts expect home prices to continue to rise in 2016, but at a slower pace, somewhere between 3 percent and 4.5 percent nationally. In the expensive coastal markets, like New York and San Francisco, prices had been rising much more quickly, but that trend is not sustainable.
We are approaching a critical threshold on the costly coasts where the median household would have to spend 40 percent or more on the median-priced house. That’s a signal that households will not rush to buy homes because affordability is pushing down on their ability to do so.
Sales would likely pick up in more affordable metropolitan areas that are also experiencing job growth, such as San Antonio and Austin, Tex.; Grand Rapids, Mich.; and Baton Rouge, La.
BUYING WILL STILL BEAT RENTING
The expected rise in mortgage rates by a half to a full percentage point by the end of the year will not wipe out the financial advantage to buying over renting in the largest metro markets. The exceptions will be the costliest markets, mainly in California, where a rate rise to 4.5 percent or 4.75 percent could put home buying on par with the cost of renting.
Rising rates may also dissuade some would-be sellers from putting homes on the market, continuing to starve markets hungry for inventory. Some owners have refinanced at the lowest rates humanly possible, and they may be unwilling to give up that mortgage. The biggest risk for the 2016 market is lack of inventory.
THE MIX OF BUYERS WILL CHANGE
For the last few years, the buyer makeup has been somewhat distorted. We’ve had a lot of investors in the market, and a smaller share of first-time buyers, at around 32 percent. That will change this year as the era of big bargains for single-family investors comes to a close and the ranks of first-timers grow.
Families that have been shut out of the mortgage market could be helped by some new government initiatives, like Fannie Mae’s Home Ready program, which will allow borrowers to qualify using income from other household members not listed on the mortgage or from non-occupant co-borrowers.
While the credit pendulum is still swung on the side of being tight, and arguably too tight, first-time buyers are responding to the reduction in insurance premiums on mortgages backed by the Federal Housing Administration, which require as little as 3.5 percent down.
THE SPRING MARKET COULD HIT IN WINTER.
Spurred by the expected rise in interest rates, buyers may come out earlier in the year than usual, maybe even in February. Rates are going up, and buyers have seen prices rising and will want to get in before they go up higher and the third factor is, what’s the alternative? Renting is becoming increasingly expensive.
Contact our home loan agents in San Ramon for more projections of the 2016 buying market.