​Real Estate & Mortgage Industry Predictions for 2016

For most, the New Year means a new start. Although, one decision made in 2015 will carry-over and directly impact the economy, mortgage and real estate industry in 2016.

On December 16, 2015, the Federal Open Market Committee (FOMC) chose to raise federal interest rates for the first time since the end of the Subprime Mortgage Crisis. Since 2009, the majority of property buyers have received shockingly low interest for traditional mortgage loans. This zero percent interest rate was set by the Fed to stimulate economic rehabilitation after the famous “market crash”. After much deliberation and extended observation, the FOMC came to the agreement to raise interest rates in hopes of balancing the economy’s current unemployment rate and labor market. So what does this mean for commercial real estate in 2016?

While you might be expecting big changes this year, this is actually what most like to call economic “normalcy”. Basically this rate hike means that our economy is flourishing and operating at above-average economic levels. The following are some of the predictions that economists see in our 2016 forecast:

• Rents will increase. It’s more affordable to buy in more than three-quarters of the U.S. However, for the majority of renting households, buying is not a near-term option due to poor household credit scores, limited savings, and lack of documentable stable income of the kind necessary to qualify for a traditional mortgage today.
• 1st time home buyers, also known as millennials, are expected to make upa bigger portion of the market than they did in 2015. The reason is simple: The market will be more welcoming to them thanks to the slowing price growth and easier access to mortgage loans from lenders.
• Building single family homes are in record low demand due to the growing options for alternative living spaces (I.E. Condos, apartments, tiny houses, lofts, etc.) & cost to build will remain relatively unaffected & still extremely low due to low demand.
• While value and price of commercial retail properties remain the same, office buildings will increase in demand. Property markets in general will start to resemble the Pre-Mortgage Crisis form.
• Due to the mortgage interest rate hike, homeowners and home buyers are fearful that their mortgage payments will become too expensive, but in reality, after the hike, interest rates will only increase a minimal amount, therefore most people will not see a significant difference in mortgage payments.
• Regardless of the recent rate hike, U.S. interest rates will still be considered low and remain low even after gradual increases throughout 2016.
• There is no guarantee a relatively small interest rate hike by the Fed will actually lead to a bump in the mortgage rates most borrowers pay at all.
• Slower market means fewer closings. With limited inventory of houses, bidding wars will commence.
• The biggest potential risk in 2016 will be a shortage of housing, especially homes in an affordable market
• The mortgage market will be one step closer to being recovered following the real estate market crash of 09.
• In conclusion, the Fed’s decisions to raise the national interest rate is nothing that the real estate or mortgage industry should fear. While residential and commercial lenders will see some changes in 2016, the year should see nothing but growth.