Rising interest rates, increasing home prices and the formation of more than one million new households are likely in store for the housing market next year, among other national mortgage industry trends, according to predictions from CoreLogic’s (NYSE: CLGX) 2016 Outlook for Housing.
“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,” said Dr. Frank Nothaft, senior vice president and chief economist at CoreLogic. “Most forecasts place growth at 2 and 3 percent during 2016, creating enough jobs to exert downward pressure on the national unemployment rate.”
If such macroeconomic conditions do prevail in 2016, he added, the U.S. can expect to see five features in next year’s housing market.
1. Interest rates will gradually move higher
WIth the Federal Reserve expected to raise interest rates in the short term between now and 2016’s end, Nothaft says homeowners who have adjustable-rate mortgages or home equity loans will most likely see their interest rate rise as a result.
Fixed-rate mortgages will also rise, he added, estimating an increase of one-half of a percentage point between now and the end of 2016, reaching 4.5% for 40-year loans.
“Even after this rise, mortgage rates will remain historically low, more than a full percentage point below the average rate during the Great Recession,” Nothaft said.
2. Household formations will add to housing demand
Improvements in the labor markets propelled growth in new household formation last year and these advances should carry over into 2016 as well, in turn accelerating the formation of 1.25 million net households formed over the next year, according to Nothaft.
And most of these new households will want rental homes, leading to the third feature of the 2016 housing market…
3. High demand ahead for rental homes
Rental vacancy rates for both apartments and houses are at, or near, their lowest levels in 30 years, and rents are rising quicker than inflation, Nothaft noted.
“These market conditions will likely continue in 2016, as newly built apartments are absorbed by demand from new, young households,” he said. “Look for rental vacancy rates to remain relatively low and rent growth to outpace inflation in 2016.”
4. Home prices and sales will likely increase
Not only is the rental market heating up, but overall home purchase demand may even increase home sales in 2016 to the best year since 2007, Nothaft noted.
Appreciation in national home price indexes will likely continue at a faster pace than inflation, but grow more moderately than last year, CoreLogic predicts. The CoreLogic Home Price Index was up about 6% over the last 12 months, and CoreLogic anticipates a rise of 4-5% during 2016.
This increase in home sales and prices can be attributed to the improved economy, Nothaft said, which has brightened the financial outlook for many families and enhanced their overall financial security.
5. Dollar volume of single-family originations will fall
In 2016, CoreLogic predicts overall single-family mortgage originations will fall about 10% compared to this year, while multifamily originations will likely rise.
The decline in single-family will occur even though CoreLogic expects that originations of home purchase loans will likely rise about 10-12% in volume next year, and home equity lending as well.
However, growth in these two segments will be “swamped” by a more than one-third drop in refinance, reflecting the higher mortgage rates and dwindling pool of borrowers with a strong financial incentive to refinance, Nothaft said.
“The gain in multifamily lending reflects the higher property values and completion of new buildings that add to permanent mortgage usage,” he said.
Watch the CoreLogic 2016 Outlook for Housing video.
Written by Jason Oliva