The Housing Market Outlook is Bright…For Now

Forecast One BHThe market seems geared to remain strong for the rest of 2016. But Realtor.com’s Jonathon Smoke says the improving economy presents both opportunities and challenges for the months ahead.

The analysis reports that total home sales up 4 percent from the year prior. Specifically, existing-home sales are up 3 percent, and new-home sales are up 13 percent.

Smoke says that the new-home market is gaining momentum as the existing-home market finds itself restricted by extremely low levels of inventory. Now new homes represent 10 percent of home sales, whereas a year ago, they only represented 8 percent.

Additionally, Smoke included that the housing market outperformed the U.S. economy in the first half of the year, due to high demand from Millennial and baby boomer buyers who are now reaching turning points in their lives (marriage, retirement) that push them to make housing decisions.

“Now the U.S. economy appears to be on stronger footing, posting the strongest GDP growth in the third quarter than we have seen in two years,” says Smoke.

But what does this mean for the remainder of 2016?

Smoke says that with a more positive outlook domestically as well as reduced concern over negative interest rates continuing abroad, the Federal Reserve will likely raise short-term interest rates at the December meeting.

“While mortgage rates are likely to be on the move up, they are not likely to move up dramatically,” says Smoke. “U.S. economic growth remains tepid by historical standards, and low rates globally will prevent the Fed from being too aggressive.”

Higher rates, though, present not only a challenge but an opportunity. An increase of 10 basis points will increase the monthly payment by 1.2 percent, but lenders and investors will likely be more aggressive in the purchase mortgage market as the chance to make more money increases with higher rates.

In addition, with the presidential election at its end, Smoke reports that consumer confidence should rebound from its recent decline. With a stronger consumer outlook combined with historically high numbers of people turning 30 as well as 65, continued gains will be seen in the months ahead.

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