It’s that time of the year again when everyone makes a few predictions for the year ahead. Real estate analysis firm CoreLogic said the U.S. housing market will expand for the eighth year in succession, bringing with it rising home prices, rising rents and an increase in the key interest rate.
“As we approach the start of 2016, the consensus view among economists is that economic growth will continue, and the U.S. will enter an eighth consecutive year of expansion in the second half of next year. Most forecasts place growth at 2 (percent) and 3 percent during 2016, creating enough jobs to exert downward pressure on the national unemployment rate,” CoreLogic Senior Vice President and Chief Economist Frank Nothaft said in a blog posting on the company’s site at http://www.corelogic.com/blog/authors/frank-nothaft/2015/12/corelogic-us-2015.aspx#.VnRlvkrKUk.
Nothaft singled out key factors expected to impact real estate in the coming year.
1. Interest rates go up
The Federal Reserve is expected to increase short-term interest rates by around one percentage point before the end of next year. As a result, homeowners with adjustable-rate mortgages or home-equity loans will see a rise in their own interest rates. CoreLogic says mortgage rates will still be at a historical low overall.
2. New households to drive demand
CoreLogic warns that housing demand will be significantly impacted by the formation of 1.25 million new households over the next year. Improvements in the labor market and reduced unemployment will be the main forces driving new household formation, while adding increased pressure on housing, particularly in the rental market.
3. Pressure on the rental market
CoreLogic says rental vacancy rates are already at their lowest level in 20 years, and high demand for both homes and apartments will continue throughout 2016.
4. Home prices and sales will increase
Home prices will surge in 2016 and CoreLogic says purchase demands may reach its highest level since 2007, with home prices at the national level rising at a faster rate than inflation. CoreLogic attributes rising home prices to the improving economy, which in turn enhances most homeowner’s feelings of financial security.