2016 is projected by most analysts and economists to be a banner year for real estate. Real estate is hyper-local as you may know, so although we may not see our particular area respond the same way as the housing market regionally or nationally does, the trends that follow should impact us to some degree and provide an increase in sales over the next year.
Expected for this year, especially as we approach the spring buying/selling season, is a rise in mortgage interest rates. For a few years now rates have been below 4%, however, Freddie Mac (the government sponsored enterprise that purchases home loans on the secondary market) predicts that mortgage interest rates will increase to about 5% by the end of 2015. This may not sound like a big deal, but if you are looking to buy, just a 1% increase in rates over a 30 year period on a 200K loan is an extra 50K in interest paid. So, if you are looking to buy, do it now and if you are in the market to sell and may, in turn, buy afterwards, don’t delay! Buyers may hibernate a little if the rates go up which will impact sellers. Of course, once buyers realize that rates are still historically low they’ll hop right back into buy mode, so the impact, if there is one, shouldn’t last long. Overall, the threat of rising interest rates should get buyers and sellers moving early this year and ramp up sales above last year’s numbers during this same period.
We should also see the number of foreclosures and short sales continue to fall to at or below pre-recession levels over the next year. According to RealtyTrac (a leading provider of comprehensive housing data and analytics for the real estate and financial services industries) foreclosure filings fell about 172 percent compared to the same period one year prior. Hyper locally, purchases of foreclosures and short sales are down almost 50% over the past four years and foreclosures make up less than 10% of the current inventory. This is great news for traditional sellers whom, in 2007 through 2009, had to compete against a market that saw almost half of the new homes hitting the market listed as foreclosures or short sales.
Rents, as projected by may reporting agencies, will continue to rise as well. According to the National Association of Realtors, “Rents likely will continue to rise in the new year, and an increase in rental costs in 2015 could outpace annual home-price gains. Expect the rental market to remain a “landlord’s market” in 2015, with vacancy rates expected to stay below 5 percent in the new year.” You can be sure that as rents start to outpace and/or increase over the typical mortgage cost for a similar space/property, buyers will start to see increased value in purchasing a home and building equity even if it’s in the short term. These aforementioned trends (rates, foreclosures and rents) along with reduced fuel costs (22% of energy consumption comes from residential real estate) and the stronger economy (recently the DOW shot over 18,000 for the first time) all make for what should be a great year in real estate!
This post was written by Jesse Godzala of the Godzala/Brenny Edina Realty Team. Jesse is a 5-star realtor on Zillow.com and a Chairman’s Circle Award Winner at Edina Realty. For more information regarding the current housing market, contact Jesse at jessegodzala@edinarealty.com or by calling (320) 309-7335.
