Another year. What are we in for this time? Want to make a bet? I will: it will be a good year. Why? Because of 2 good reasons, one based on facts (I’ll get there) and the other one based on needs… My needs. After all, I have a role to play to insure that I fully take advantage of the market conditions, whatever they may be. You do the same. I don’t want to preach psychology 101 but, let’s face it, we are in charge, we are accountable to ourselves (not to mention others) to try hard to win, sometimes against the odds. The market is always good for someone. This one will be great for most. It’s going to be a fun ride.
OK, back to cold business thinking now. 2016 will be good because, first & foremost, there is no good factual reason, today, to think otherwise. We are coming out of a year when unit sales across the 4 regions increased from the previous year, up to nearly 8% in the Northeast. And this happened at a time when the listing inventory was at a level which may very well have been an all-time low.
As far as price appreciation, same “positive” picture (for the sellers that is). When the final 2015 numbers are released, they will show that housing prices rose over 3% nationally. The West, as a whole, led the pack with about 5%. Pretty much what we thought would happen when we posted our prognostic a year ago.
We are in a good place, today, as we start 2016. The economy is strong. Finally. The agonizingly long/slow recovery from the 2007-2009 financial crisis produced stability & growth. We are looking at 2.5-2.8%% growth this year and an unemployment rate down in the neighborhood of 4.7%. Combine that with a strong consumer confidence (steady improvement since 2009)…. And the fact that housing formation (creating needs in the real estate sector) surged with 1.7 million new households in 2015 …. And the fact that vacancy rates in the commercial/business arena are as low as I have seen them since the late 90s (15.6% for offices, 13.2% for retail & 7.1% according to NAR)…. And the fact that there is a backlog of a few hundred IPOs in the pipeline after a disappointing 2015 (tech/internet IPOs were down 53% in number y/y and raised 77% less than in 2014)….. All that bodes well indeed for the US economic outlook.
It is expected that home sales, this year, will be in the neighborhood of 5.5M units. If this comes true, it will be roughly 3.5% better than last year and 30% more than in 2010. Prices will continue their slow and moderate rise, between 3% and 4.5% nationally. Like it. No dark clouds on the 2016 horizon, which does not mean that the sky will be solid-blue. It never is more than a day at a time. So, let’s take a look at the very few & small clouds that we need to keep an eye on this year.
- Interest rates: The Fed did it; it raised rates for the first time in nearly 10 years. It is not the beginning of the end, just merely the end of the doubt. Frankly it will make no difference to speak of on the real estate activity. The rise should not exceed 1% by year-end. Business as usual.
- Home ownership: it has dropped and there is a question mark as to whether the decline will continue. Aside from the over 65, all other age groups are down. The Millennials, as we wrote here a few weeks back, are not “doing their part”. They now account for 30% of home sales while they historically were good for 36%. We are counting on them in 2016.
- Length of home ownership: If we use the CAR stats for California, where the turnover is known to be fast, we notice that from 4 years in 1989, the number of years people owned a home before selling jumped to 8 in 2013 and now stands at 10.
- Investors: They were slow to buy over the last 2 years. Distressed sales are all but gone and prices have skyrocketed to the point where the cost and the risk are too high. With the economy growing, the picture is likely to improve all year.
- Cash buyers: their numbers are shrinking. With the cost of mortgage money going up a notch, the downtrend may be reversed in 2016.
- International buyers: CAR reports that their 2015 share (4% of all sales) was the lowest in 8 years. Don’t worry. Even a strong dollar and a weak global outlook will not stop or even slow wealthy foreign investors from rushing to buy US real estate. Quite the opposite. Will be a good year, thanks particularly to the insatiable appetite of Chines and Indian Nationals for our land & property.
- Affordability: Not expecting great news for first-time buyers. One suggestion though. If you are one of them, buy now, even if it hurts. It will not get any easier anytime soon.
- It’s an election year… Whatever that means.
To a good year in 2016!