Whether you are buying, selling, or renting, there's no escaping Federal Reserve's anticipated increase in interest rates in the coming year. Regardless which real estate transactions you belong to, there are very important things that you need to brace yourself for come 2016 according to Daniel Goldstein of Market Watch:
Stagnant home prices
The economy's finally creating jobs and this urges the Federal Reserve to keep an eye on inflation rate more than worrying about stimulus, and it also results to higher interest rates, which will affect the cost of credit for those who are looking to a buy a home.
"Affordability is going to be a much bigger hindrance going into 2016," said Daren Blomquist, vice president of research at Irvine, Calif.-based RealtyTrac, a realty research group. According to him, his firm tracks about 600 counties all over the country and 3% of that were found to have home prices that are "unaffordable" if based on the average American weekly wage ($1056). Should interest rates top 5%, unaffordable markets are expected to mushroom.
"If interest rates rise, and home prices rise, and wages rise only tepidly, we could see the 3% of unaffordable markets rise to as much as 25%. Stagnation of home price appreciation would be a likely scenario," Blomquist said.
More millenials will consider buying a home
Millenials are very much into real estate now more than ever, with the number increasing every year, according to Trulia. In 2011, only 65% of millenials were interested with the idea, but it has significantly increased to 80% this year from last year's 78%. One third of that number is looking to make the purchase in the next two years, Trulia adds. "Most borrowers of this age group are waiting for a work promotion or to build up enough savings to buy," said Ralph McLaughlin of Trulia. "We don't expect a big rush to jump in, but it's going to be an incremental improvement," he said.
However, increased interest rates might make most of the millenials delay the purchase for another year in the face of student debt, stagnant job wages, and increasing home prices rents at the moment.
Fewer houses available for buyers
With the market trying to recover for the last four years, people who are hoping to buy a home are left standing in a balance. The thing is, homeowners are choosing to remodel their homes than move to a bigger one which leaves those at entry level trying to get starter homes with not much choices; "a mortgage lock-in effect" according to Kermit Baker of the American Institute of Architects.
"People aren't going to trade in their historically low mortgage rate at this point for a higher one," he said. Baby boomers are not making the suicidal move of moving for a higher-rate mortgage and are instead pouring equity in major kitchen or bathroom remodels.
AIA has seen $325 billion worth of home improvement projects this year and is expecting it to blow up in the next couple of years. High-end rental properties are also adapting as high interest rates make renting a much better choice for some. "The remodeling demand in the high-end rental market is really strong," Baker said.
More new mortgage loan products will be needed
Anthony Hsieh of loanDepot.com sees the need for more loan products that don't come with large down payments or years of mortgage insurance premium in 2016. "We have a real lack of programs out there for consumers to extract equity," he said.
