Redfin-2016 Housing Predictions

Here’s why 2016 will bring good news for potential home buyers

Source: HousingWire

Redfin: 5 housing predictions for next year

The New Year doesn’t bring all good news, with some bad tossed in the mixed. Overall, Redfin said, “All things considered, we see a fairly uneventful housing market next year.”

Here are Redfin’s five housing market predictions for 2016:

1. Prices and sales will grow half as fast

As price growth ebbs and mortgage rates rise, more homeowners will stay put. Sales will grow about half as fast as they did this year and prices will rise at a more normal 3.5% to 4.5%, down from almost 6% this year.

According to a recent report from RealtyTrac, for more than a third of the nation’s major metro areas, home prices have reached all-time highs in 2015.

2. Easier Credit

Americans for whom a mortgage has been just out of reach will have a better shot at qualifying for one in 2016.

Lenders will embrace new ways to measure creditworthiness and mortgages will evolve to serve a changing American household. For example, credit scores will better evaluate a person’s rental history and utility bill payments. More loans will allow buyers to include income from room rentals, live-in parents and extended-family members.

In a significant move for housing regulation, last week a bill was introduced in the House of Representatives that would allow Fannie Mae and Freddie Mac to consider alternative credit-scoring models beyond the FICO credit score the government-sponsored enterprises currently use when determining what loans to purchase.

3. More (and older) first-time buyers

We expect first-timers to make up a bigger portion of the market than they did this year. The reason is simple: The market will be more welcoming to them thanks to the aforementioned slowing price growth and easier access to loans. This year’s market dropouts have saved for bigger down payments and will be ready to give the market another shot early next year. And more of those millennials who had been holding off on buying for various reasons will finally be ready and able to in 2016.

In the Mortgage Bankers Association’s housing report that looks at the future decade, Lynn Fisher, MBA’s vice president of Research and Economics, said, “Improving employment markets will build on major demographic trends – including maturing of Baby Boomers, Hispanics and Millennials – to create strong growth in both owner and rental housing markets over the next decade.”

4. Slower market, slowing closings

The 2015 housing market was the fastest we’ve seen at Redfin. From January to October, the typical home was on the market for 36 days, four days faster than the same period in 2014. We expect the market to slow in 2016 as government-backed loans become more common and cash sales become less so. Because of low inventory, bidding wars will still be in force next year, but there will be a lower ceiling on price escalation as 2016 buyers won’t be willing or able to go as high as buyers have in recent years.

To help, here are a few tips from Minnesota Realtor Craig Kamman to help win a bidding war. On example he listed is to offer full price or more. Money is a major factor in a seller’s decision, but not the only one.

5. Continuing inventory shortage

The biggest risk to the 2016 market will be the continuation of inventory shortage, especially in the affordable segment of the market. The number of homes for sale shrank from 2014 to 2015 in 45 of the 60 metro tracked by Redfin. Inventory across all 60 metros is down 4 percent from a year ago.

The most recent pending home sales report from the National Association of Realtors said that sales have plateaued this fall as buyers struggle to overcome a scant number of available homes for sale and prices that are rising too fast in some markets.

Fed Raises Key Interest Rate

Fed Raises Key Interest Rate…

 By MARTIN CRUTSINGER

AP Economics Writer

WASHINGTON (AP) — The Federal Reserve is raising interest rates from record lows set at the depths of the 2008 financial crisis, a shift that heralds modestly higher rates on some loans.

The Fed coupled its first rate hike in nine years with a signal that further increases will likely be made slowly as the economy strengthens further and inflation rises from undesirably low levels.

Wednesday’s action signaled the central bank’s belief that the economy has finally regained enough strength 6½ years after the Great Recession ended to withstand modestly higher borrowing rates.

“The Fed’s decision today reflects our confidence in the U.S. economy,” Chair Janet Yellen said at a news conference.

The Fed said in a statement after its latest meeting that it was lifting its key rate by a quarter-point to a range of 0.25 percent to 0.5 percent. Its move ends an extraordinary seven-year period of near-zero borrowing rates. But the Fed’s statement suggested that rates would remain historically low well into the future, saying it expects “only gradual increases.”

“The Fed reaffirmed that the pace of rate hikes would be slow,” James Marple, senior economist at TD Economics wrote in a research note. “The Fed’s expectations for rate hikes next year are set alongside a relatively cautious and entirely achievable economic outlook.”

Stocks closed up sharply higher. The Dow Jones industrial average, which had been up modestly before the announcement, gained 224 points, or 1.3 percent, for the day.

The bond market didn’t react much. The yield on the 10-year Treasury note rose slightly to 2.29 percent.

Rates on mortgages and car loans aren’t expected to rise much soon. The Fed’s benchmark rate doesn’t directly affect them. Long-term mortgages, for example, tend to track 10-year U.S. Treasury yields, which will likely stay low as long as inflation does and investors keep buying Treasurys.

But rates on some other loans, like credit cards and home equity credit lines, will likely rise, though probably only slightly as long as the Fed’s rate hikes remain modest.

Shortly after the Fed’s announcement, major banks began announcing that they were raising their prime lending rate from 3.25 percent to 3.50 percent. The prime rate is a benchmark for some types of consumer loans such as home equity loans. Wells Fargo was the first bank to announce the rate hike.

Among other things, the Fed’s low-interest rate policies have helped jump-start auto sales, which are on track to reach a record 17.5 million this year. And the Fed’s first hike may not slow them.

Steven Szakaly, chief economist for the National Automobile Dealers Association, says dealers will press financing companies to keep loan rates low. And competition for buyers will spur them to take other steps to hold down rates, such as accepting lower profits.

“The rate squeeze will happen between the dealer and its finance company rather than the dealer and the consumers,” Szakaly said. “Consumers won’t even feel it.”

For months, Yellen and other Fed officials have said they expected any rate hikes to be small and gradual. But nervous investors have been looking for further assurances.

Yellen indicated that Wednesday’s rate hike was partially defensive. If rates stayed at near zero, the Fed might not have the tools to combat a recession.

“We’ve worried about the fact that with interest rates at zero, we have less scope to respond to negative shocks,” she said at her news conference.

When growth struggles, the Fed often cuts rates to help increase the amount of cash flowing through the economy. But by staying close to zero, the Fed would be unable to cut rates or it would be forced to have negative rates for the first time in its history.

An updated economic forecast released with the policy statement showed that Fed officials predict that their target for the federal funds rate – the rate that banks charge on overnight loans – will end next year slightly above 1 percent. That is in line with the consensus view of economists.

The Fed’s action was approved by a unanimous vote of 10-0, giving Yellen a victory in achieving consensus.

The statement struck a generally more upbeat tone in its assessment of the economy. It cited “considerable improvement” in the job market. And it expressed more confidence that inflation, which has been running well below the Fed’s 2 percent target, would begin rising. It suggested this would happen as the effects of declines in energy and import prices fade and the job market strengthens further.

In addition to the funds rate, the Fed is raising three other rates: It lifted the interest it pays on the reserves that banks hold at the Fed to 0.5 percent from 0.25 percent. It raised the rate it pays on a type of short-term loan to 0.25 percent from 0.05 percent. The Fed plans to use those two rates to help meet its new higher target for the funds rate.

In addition, it announced a quarter-point increase in its discount borrowing rate to 1 percent from 0.75 percent. This is the rate banks pay when they borrow emergency loans from the central bank. This rate typically moves up in conjunction with the Fed’s benchmark rate.

AP Business Writers Paul Wiseman and Josh Boak in Washington and Tom Krisher in Detroit contributed to this report.

 

Americans’ household wealth falls for first time in 4 years

Associated Press

December 10, 2015 9:47 A.M.

The stock market’s sharp decline in August and September took its toll on Americans’ finances in the third quarter. Household net worth fell for the first time in four years.

The Federal Reserve said Thursday that Americans’ stock and mutual fund portfolios plunged $2.3 trillion in the July-September quarter. That far outweighed a $482 billion increase in home values. Overall, household net worth fell to $85.2 trillion from $86.4 trillion in the second quarter.

Less household wealth can cause consumers to pull back on spending to rebuild savings. That can slow growth since consumer spending drives more than two-thirds of economic activity. Americans were cautious about spending in October when retail sales barely rose and savings rates climbed.

Still, stock markets have mostly rebounded since September and there are few signs that consumers are sharply cutting back. Americans’ net worth has grown 2.9 percent in the past year.

That rise may have left many Americans feeling wealthier, even with last quarter’s decline.

Consumer spending rose at a healthy pace in the third quarter, when it was 3.2 percent higher compared with a year earlier. Steady job gains in the past three years are starting to finally boost paychecks a bit and fuel more shopping and car-buying.

Americans are also willing to take out more debt, which can be a sign of confidence in the economy, though the increase slowed from the second quarter. Consumer credit, which includes auto loans, student loans, and credit cards, increased at a solid 7.2 percent annual rate. Outstanding mortgage debt rose 1.6 percent.

The Dow Jones industrial average fell nearly 9 percent in August and September as fears intensified that China’s economy was slowing more sharply than economists had anticipated. The dollar also continued to rise in value compared with overseas currencies, making U.S. exports overseas more expensive and imports cheaper.

The Fed’s figures aren’t adjusted for population growth or inflation. Household wealth, or net worth, reflects the value of homes, stocks and other assets minus mortgages, credit cards and other debts.

WSJ Survey: Economists Are Convinced Fed Will Raise Rates in December

About 65% of economists surveyed by The Wall Street Journal said they expected the Fed’s second rate increase would come in March, while 14% predicted April and 16% predicted June. Photo: Andrew Harnik/Associated Press

By Ben Leubsdorf

There now is little doubt among private economic forecasters that the Federal Reserve will raise short-term interest rates next week.

About 97% of business and academic economists surveyed by The Wall Street Journal in recent days predicted Fed officials will raise the benchmark federal-funds rate Wednesday. Just 3% said they expected officials would wait until next year to move rates up. Last month, 92% of forecasters predicted a December rate increase.

Economists have become more confident, too, in predicting the Fed will move this month. The forecasters on average estimated the probability of liftoff at the Dec. 15-16 meeting at 87%, up from 71% last month and 48% in October. They are in agreement with financial markets—fed-funds futures on Wednesday suggested an 85% probability of a December rate increase, according to CME Group. CME 0.93 %

 

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“The table is set, all the Fed needs to do is show up to serve the meal,” said Diane Swonk, chief economist at Mesirow Financial.

Since their policy meeting in late October, Fed officials have sent strong signals they might begin to raise the fed-funds rate in December after holding it near zero for seven years. Chairwoman Janet Yellen last week told lawmakers the U.S. economy “is doing well and that is the reason that it is a live option for us in our December meeting to discuss…whether or not it’s appropriate to raise rates.” A solid jobs report for November appeared to clear the way for such a move.

Indeed, 82% of economists surveyed said they thought the Fed’s credibility would be damaged if it didn’t raise rates next week, up from 65% who said so last month.

“Based on recent comments by Janet Yellen and [Fed Vice Chairman] Stanley Fischer on how much the economy has improved, as well as stronger job and income numbers, not to raise in December would be tantamount to deception,” said Bernard Baumohl, chief global economist at Economic Outlook Group LLC.

After the long-anticipated first rate increase, attention will shift to the timing of the Fed’s next move as the central bank aims to raise rates at what Ms. Yellen and several other top officials have described as a gradual and cautious pace. Most economists think that means the Fed will raise rates this month, stay on hold at its Jan. 26-27 meeting and then raise rates a second time at the March 15-16 policy meeting.

About 65% said they expected the Fed’s second rate increase would come in March, while 14% predicted April and 16% predicted June. In November, 49% predicted the second move would happen in March.

“This Fed is still very cautious,” said Thomas K. Swift, chief economist at the American Chemistry Council.

 

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Photo: The Wall Street Journal

Since their policy meeting in late October, Fed officials have sent strong signals they might begin to raise the fed-funds rate in December after holding it near zero for seven years. Chairwoman Janet Yellen last week told lawmakers the U.S. economy “is doing well and that is the reason that it is a live option for us in our December meeting to discuss…whether or not it’s appropriate to raise rates.” A solid jobs report for November appeared to clear the way for such a move.

Indeed, 82% of economists surveyed said they thought the Fed’s credibility would be damaged if it didn’t raise rates next week, up from 65% who said so last month.

“Based on recent comments by Janet Yellen and [Fed Vice Chairman] Stanley Fischer on how much the economy has improved, as well as stronger job and income numbers, not to raise in December would be tantamount to deception,” said Bernard Baumohl, chief global economist at Economic Outlook Group LLC.

After the long-anticipated first rate increase, attention will shift to the timing of the Fed’s next move as the central bank aims to raise rates at what Ms. Yellen and several other top officials have described as a gradual and cautious pace. Most economists think that means the Fed will raise rates this month, stay on hold at its Jan. 26-27 meeting and then raise rates a second time at the March 15-16 policy meeting.

About 65% said they expected the Fed’s second rate increase would come in March, while 14% predicted April and 16% predicted June. In November, 49% predicted the second move would happen in March.

“This Fed is still very cautious,” said Thomas K. Swift, chief economist at the American Chemistry Council.

The Journal surveyed 65 economists Friday through Tuesday, though not every forecaster answered every question.

 

Associated Press

In this Wednesday, Oct. 7, 2015, photo, a home is for sale in Coral Gables, Fla. Fewer Americans bought homes in October, a sign that rising home values may be pushing more would-be buyers to the real estate market’s sidelines, based on information released Monday, Nov. 23, 2015, by the National Association of Realtors. (AP Photo/Lynne Sladky)

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In this Wednesday, Oct. 7, 2015, photo, a home is for sale in Coral Gables, Fla. Fewer Americans bought homes in October, a sign that rising home values may be pushing more would-be buyers to the real estate market’s sidelines, based on information released Monday, Nov. 23, 2015, by the National Association of Realtors. (AP Photo/Lynne Sladky)

WASHINGTON (AP) — Fewer Americans bought homes in October, a sign that rising home values may be pushing more would-be buyers to the real estate market’s sidelines.

The National Association of Realtors said Monday that sales of existing homes fell 3.4 percent last month to a seasonally adjusted annual rate of 5.36 million.

The decline comes after strong growth in home-buying for much of 2015, bolstered by steady job gains and low mortgage rates. Home purchases have advanced 3.9 percent from a year ago, even as buyers have fewer choices because the number of listings on the market has dropped 4.5 percent.

But last month suggested the start of a reflexive backlash after the strong gains in home-buying. The additional sales have spawned sharp price increases that have outpaced wage growth and left some would-be buyers out of the market.

The October sales decrease indicates “the market is treading water,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics.

Yet other economists anticipate sales growth to return because of the underlying health of the broader economy.

“Despite the setback, home sales should resume higher in the face of rising rents, good job growth, improved consumer confidence and still-low mortgage rates,” said Sal Guatieri, a senior economist at BMO Capital Markets.

The median home sales price was $219,600 in October, a 5.8 percent annual increase. Sales fell sharply in the West and South where prices have risen at the fastest rates this year. Purchases declined 8.7 percent in the West and 3.2 percent in the South, while dipping 0.8 percent in the Midwest and staying unchanged in the Northeast on a seasonally adjusted basis.

The 5 percent unemployment rate has helped coax traditional buyers into the market, supplanting the investors who bought foreclosed properties for all-cash in the aftermath of the Great Recession. Current homeowners seeking an upgrade or chance to downsize appear to have accounted for much of this year’s sales gains, as first-time buyers accounted for 31 percent of sales in October. First-time buyers have historically made up 40 percent of all sales.

Tight inventories are curbing enthusiasm among some homebuyers. Just 4.8 months’ supply of homes is available, well below the 6 months associated with a balanced market.

The limited supplies and greater demand fueled higher home values. Home prices have appreciated at more than double the gains in average hourly earnings, requiring buyers to set aside more savings for a down payment or bid more fiercely for the most desirable properties.

Low mortgage rates have offset some of the pain from those price gains. But rates have started to rise ahead of a December Federal Reserve meeting, where Fed officials are expected to raise short-term rates for the first time in nearly a decade.

The average, 30-year fixed mortgage rate has risen to just a hair under 4 percent from 3.79 percent a month ago, according to mortgage buyer Freddie Mac.