Nov. 2015-Opportunity Knocks

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Th e M Rep o RT | 31 Feature N ever make predictions, especially about the future" —Casey Stengel Despite these immortal words, as 2015 comes to a close, it's hard not to speculate on what the new year will bring. While no one can completely predict the future, it is possible to use current mar- ket conditions to extrapolate on the year to come. Just as we have seen in the past, home prices, in- ventory, and engaging millennials will be just some of the hot-but- ton issues affecting housing and mortgage professionals in 2016. Momentum Building into the New Year T he housing rally, while sometimes volatile, does ap- pear to be stabilizing with assis- tance from rising employment. Recent stock market turbulence and fear that the economy is not strong enough led the Federal Reserve to continue to hold off raising rates. It is worth noting the Fed has not raised rates in nine years. The Fed Fund rate has remained at zero for seven years. The decision to keep historically low finance rates in place has allowed the housing rally to continue for the remain- der of 2015 (albeit seasonally slowing) and should help the momentum going into next year. Housing Starts, Inventory, and Pricing I n 2016, we will continue to see a rise in housing starts as high as a 10 percent increase year- over-year. In 2015 new construc- tion did not meet demand and builders still have the proverbial green light, especially in hot markets like New York, Miami, Dallas, Denver, Atlanta, Phoe- nix, and Austin. There is also a housing shortage in California, but with uncertainty pertain- ing to the effect of the current drought and subsequent build- ing restrictions, it is difficult to predict what will happen in the Golden State with homebuilders. With historically low national inventory levels that are improv- ing, existing home sales will also continue to rise, although rates will be exceeding 5 percent by 2016 year end. Optimism can be gained from the fact that the majority of homebuyers are pur- chasing homes under $250,000, so a slight uptick in mortgage rates will only limit the price of the potential purchase, not deter them from actually buying a new home altogether. The national sales-to-list ratio is also showing that the housing market is still strong. However, the expected steady rise in rates will cut refinance volume by 20 percent year-over-year; but the refi rush for the lowest rate should steadily taper off. It is not all doom and gloom, as the purchase market should help stabilize the overall lend- ing market, leaving originations overall to only drop by 5 percent year-over-year. Even if employ- ment numbers moving forward are not as strong as recent years, household formation is increas- ing, and the demand for housing is on the rise. We will continue to see an increase in property values and, as equity positions improve, more supply will be on the market and improve overall inventory. This is not the case everywhere, as we have already witnessed some markets start to taper off—like Baltimore and Philadelphia—and others that have been impacted by declin- ing oil prices—like Alaska, North Dakota, and parts of Texas. Nationally we should expect home values to continue to rise. The improved inventory will help buyers get off the sidelines and property ladder climbers can make their moves much easier than in recent times. The Millennial Factor T here is a lot of speculation as to when the millennial generation (75 million in all) will start "buying in" to the housing market. Based on recent studies, it appears the majority of this generation intend to own a home soon, but when will millennials start having a noticeable effect? Millennials came out of col- lege into one of the worst U.S. job markets of all time. While it may not be in 2016, the trend of millennial buying will start going the right way as inventory opens up. With the current student loan debt crisis ($1.2 trillion and counting) preventing many from being able to get their "skin in the game," coupled with current down payment requirements, the ability to qualify for a mortgage is still a looming issue. New FHA rules that took effect in the third quarter of 2015 only make it more difficult for "

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