16 REALTOR® JANUARY/FEBRUARY 2016 REALTORMAG.REALTOR.ORG
Holding Firm Against the Tide
2016 Forecast: Solid job gains and eased credit could help offset
continued tight inventory and rising interest rates. By Robert Freedman
Steady U.S. economic growth will help lift home sales moderately in
2016, but persistent inventory shortages will continue to put upward
pressure on prices, holding back first-time buyers. That’s a thumbnail
of the year ahead for home sales, according to NAR Chief Economist
In commercial real estate, prices of Class A buildings in major
markets are likely to drop as investors lose their appetite for trophy
properties, but bread-and-butter properties in markets across the
country will stay stable in sales and prices, and vacancy rates will
continue to fall.
Job gains will help offset short-term interest rate hikes by the Federal Reserve throughout the year. These upticks will likely lead to an
increase in long-term mortgage rates. Yun is forecasting the average
30-year fixed-rate loan to increase to 4. 5 percent by the end of the
year, up from 3. 8 percent in 2015.
Yun is forecasting the U.S. economy to grow by 2. 7 percent, a
reasonable gain when compared with the struggling growth of other
advanced economies. Job gains have been key to the recovery in the
housing market over the past several years, and Yun sees continued
strength in this area. Look for 2. 7 million new jobs, up from 2. 4 million
Higher interest rates, along with continued strong home price
appreciation, which Yun expects to reach more than 5 percent for the
year, will make affordability a stretch for many households, particu-
larly first-time buyers. But there are signs lenders are easing up on
the credit restrictions they’ve had in place since the downturn, which
will contribute to offsetting higher costs.
Yun says housing starts remain key to bringing home price
appreciation in line with household income growth. He anticipates
new-home construction to hit 1. 3 million units for 2016, up from 1. 1
million in 2015. The gains will be welcome news but won’t be enough
to bring down prices in any significant way, Yun says. What’s needed
is for starts to surpass 1. 5 million.
The disappointing construction numbers reflect the loss of small
builders and a shortage of construction labor. Small construction
companies have traditionally been the backbone of new-home
building, but the difficult financing environment created by local
banks since the downturn has thinned their ranks. That’s left much
of the market to large builders, who have access to Wall Street funds
to finance new projects but have little incentive to increase supply as
long as strong demand keeps prices high.
On the commercial side, vacancies in three of the four major
sectors—retail, office, and industrial—are expected to continue
improving, while multifamily rates are holding steady. Prices are
expected to be stable for most properties, but Class A properties in
major markets, which saw big gains last year, are expected to fall.