2016 Real estate Predictions
2015 in general for real estate throughout the country was very good in the vast majority of markets. With 2016 on the horizon where will real estate head in the upcoming year? Have we hit our peak and will 16 be an inflection year? What will happen on home price appreciation? Where will interest rates head? Will oil be a drag on real estate? How will china impact the US economy and our real estate market? See the full article for insights on this topics to make sure you are prepared for the coming year.
- Home price appreciation: The rapid rate of home price appreciation will continue to moderate. A good example of what the rest of the country will experience is occurring in Denver, according to a recent Denver post article home prices are beginning to cool down (http://www.denverpost.com/business/ci_29199564/metro-denver-home-sales-chill-out) . This same trend will play out in markets throughout the country as price appreciations slow down to reality. Although I don’t see signs of the bubble like the 06/07 recession, I don’t think prices in most markets will continue on their torrid pace and they will return to more historical norms.
- Interest rates: I think a ¼ increase in the federal funds rate at the next federal reserve meeting is a given. The wild card is what happens in 2016. The most recent recovery is shaping up to be much less robust than past recoveries with wage growth stagnating and little sign of inflation (see oil prices below). This will enable the fed to take a very measured and moderate approach to rates. I do not expect a major increase in rates over the next several years due to the low inflation measures (many economists polled also think we are in for a period of lower rates)
- Oil: Oil is a big driver of real estate in many markets (think Texas) and also a driver of the housing market. With low oil prices, inflation is lower, and consumers have more disposable income (historically most consumers drove relatively the same amount regardless of gas prices, with the 50% drop in prices at the pump this goes straight into consumer spending). Oil has a basic supply and demand problem. There is way too much supply and demand continues to shrink (vehicles are substantially more efficient today than 10 years ago). On the supply side, there is no hint of supply coming down. In the last opec meeting (no surprise to anyone) it appears that the major producers will continue to produce (see Bloomberg article: http://www.bloomberg.com/news/articles/2015-12-06/oil-extends-losses-below-40-as-opec-abandons-production-target ). The demand side does not look much better, with increasing fuel efficiency on the horizon.
- China: China is an interesting wild card. The Chinese economy will decelerate over time (just not possible to keep growing at their historical pace). The Chinese will likely go through another round of devaluation to their currency to try to spur the economy which could have implications on the US. China is the largest US trading partner so manufacturing in the US could be in for a wild year. Along with a possible devaluation, the dollar likely will strengthen, as rates rise the dollar becomes stronger. The stronger dollar makes our exports more expensive to foreign buyers.
- Along with the possible impact to the US economy with a decline in exports to China, will Chinese buyers also be dissuaded from investing in the US real estate. According to a recent study, Chinese are now the largest purchasers of US real estate (http://www.bloomberg.com/news/articles/2015-06-17/chinese-top-list-of-foreign-buyers-of-u-s-homes ). There are two factors that could influence the investment activities of the Chinese. First, a stronger dollar makes their US purchases more expensive. Second, on the flip side, will this be counteracted with a flight to quality. Many Chinese buyers are trying to diversify their holdings out of china into perceived safer markets like the US real estate market. Will the flight to quality offset the stronger dollar? It will be interesting to see how this will play out in 2016, but personally I think the flight to quality should outweigh the stronger dollar.
Written by Glen Weinberg, COO/ VP Fairview Commercial Lending. Fairview is a hard money lender specializing in private money loans / non-bank real estate loans in Georgia, Colorado, Illinois, and Florida. They are recognized in the industry as the leader in hard money lending with no upfront fees or any other games. Learn more about Hard Money Lending through our free Hard Money Guide. To get started on a loan all they need is their simple one page application (no upfront fees or other games).