Yes, it’s that time of year again. CoreLogic has come in at the head of the pack for 2016 predictions, issuing its forecast and data brief today. And while we’ve heard a bit of “doom and gloom” from Steve Brown, CoreLogic’s report says that not only will we see more home sales and more demand, but rents will continue to tick upward as well. Read the full list of predictions after the jump.
The CoreLogic Office of the Chief Economist today published its 2016 Outlook for Housing, which provides predictions and forecasts for the housing economy. According to Dr. Frank Nothaft, senior vice president and chief economist at CoreLogic, we can expect to see the following five features in next year’s housing market (Exhibit 1, Above):
Interest rates will gradually move higher. Homeowners who have adjustable-rate mortgages or home-equity loans will most likely see a rise in their interest rate because the Federal Reserve is expected to raise short-term interest rates approximately one percentage point between now and the end of 2016. Fixed-rate mortgages will also rise, perhaps up one-half of a percentage point between now and the end of 2016, reaching 4.5 percent for 30-year loans. Despite this increase in interest rates, mortgage rates will remain historically low (Exhibit 2).
Household formations will significantly add to housing demand. More than 1.25 million new households will be formed in 2016 due to improvements in the labor market and lower unemployment rates. These new household formations will increase housing demand, specifically in the rental market.
Rental homes will continue to be in high demand. Rental vacancy rates are at or near their lowest levels in 20 years, and rents are rising faster than inflation. High demand for rental homes—both apartments and houses—will likely continue in 2016, especially from new, young households.
Home sales and home prices will likely increase. Not only is the rental market hot, but overall purchase demand may lift 2016 home sales to the best year since 2007. Nationally, home prices will likely rise at a quicker rate than inflation, but not at the same rate as last year. The CoreLogic Home Price Index showed a year-over-year increase of 6 percent in the last 12 months; however, 2016 is only expected to see increases of 4-5 percent. This increase in home sales and home prices can be attributed to the improved economy, which has enhanced homeowners’ feelings of financial security.
The dollar volume of single-family mortgage originations will fall approximately 10 percent. The single-family mortgage origination decline will occur even though home equity lending is expected to rise and originations of home purchase loans will likely rise about 10 percent in volume next year. The growth in those two areas will be offset by a 34 percent drop in refinance, reflecting the higher mortgage rates and dwindling pool of borrowers with a strong financial incentive to refinance (Exhibit 3). While single-family mortgage originations are expected to fall, multifamily originations will likely rise. This gain reflects the higher property values and new construction that adds to permanent mortgage usage.
“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. Most forecasts place growth at 2 and 3 percent during 2016, creating enough jobs to exert downward pressure on the national unemployment rate,” said Nothaft.