Is 2016 A Good Year to Get Into Real Estate?

As the new year begins several indicators point to a more prosperous real estate market nationwide, and especially in Florida. According to National Association of Home Builders (NAHB), “steady employment and economic growth, pent-up demand, affordable home prices, and attractive mortgage rates will keep the housing market on a gradual upward trend in 2016.”

Now in its 37th year, Emerging Trends in Real Estate® is one of the oldest, most highly regarded annual industry outlook for the real estate and land use industry. This yearly report lists 8 Florida cities in its 2016 comparative ranking for the best 84 North American (U.S. and Canada) markets based on investment, development, and home building.

Housingpredictor.com says that although the Florida housing market isn’t exactly booming, statewide data shows that the market is growing along normal trend lines. In Florida, home values are up and yet still below the national average. In addition, Florida has the fastest growing labor force in the country and expects an approximate 2.3% growth in the job market this year. Specifically, the Tampa housing market has seen a more significant increase as of recently. Home values have seen an increase of 5.3% in the past year and the number is expected to increase another 2.1% in the following year. Median home values in Tampa stand at $141,800 and the median rent is $1,285. According to a Buy vs. Rent study conducted by Trulia FL, it is 43% cheaper to buy a home rather than rent one in Tampa Bay (assuming the buyer puts 3.5% down and will stay in the home for 7 years). Delinquent mortgages in Tampa are 10.5% and homeowners underwater on their mortgage come in at 22.2%. Median list price is $199,000 and median sale price is about the same, meaning that homes are being bought up for the asking price. There does seem to be a shortage of homes for sale and a surplus of apartments for rent. For those looking to purchase a home in Tampa, the search may be a little more extensive than past markets in the area as supply is down and demand continues to rise.

Realtor.com predicts an “exciting 2016 forecast.” According to an article posted December 16, 2015; “One of the main drivers behind the brighter 2016: The projection that employment will continue to grow, which will add to consumers’ wallets and allow them to purchase their first home or upgrade to a new one.” Their top 5 predications for 2016 are:

1. 'Normal' is coming

Expect a healthy growth in home sales and prices – at a slower pace than in 2015. "This slowdown is not an indication of a problem – it's just a return to normalcy," writes Jonathan Smoke, realtor.com's chief economist. "We've lived through 15 years of truly abnormal trends, and after working off the devastating effects of the housing bust, we're finally seeing signs of more normal conditions."

New construction and distressed sales are expected to return to more historic levels, and home prices are expected to follow at "more normal rates consistent with a more balanced market."

2. Generational buying trends shape up

Young adults' presence on the housing market has been largely predicted for years, but 2016 may finally be the year they make a move in a larger way. Millennials represented nearly 2 billion sales in 2015 – one-third of homebuyers. They are expected to continue to be a major buying pool in 2016 with the majority of buyers between ages 25 and 34 expected to be first-time homebuyers next year.

But two other generations will also have a big presence in 2016: financially recovering GenXers and older baby boomers entering retirement, realtor.com® notes.

"Since most of these people are already homeowners, they'll play a double role, boosting the market as both sellers and buyers," Smoke says. "Gen Xers are in their prime earning years and thus able to relocate to better neighborhoods for their families. Older boomers are approaching (or already in) retirement and seeking to downsize and lock in a lower cost of living."

3. New-home construction focuses more on affordability

Builders face higher land costs, limited labor and concerns about the demand of the entry-level market. As a result, they shifted to constructing more higher-priced homes, which caused new-home prices to rise significantly faster than existing-home prices.

In 2016, they'll likely shift to more affordable products to cater to the entry-level buyers. "We are already seeing a decline in new-home prices for new contracts signed this fall," notes Smoke. "In addition, credit access is improving enough to make the first-time buyer segment more attractive to builders."

4. Higher mortgage rates

Mortgage rates will likely be volatile in 2016. But the recent move by the Federal Reserve to guide interest rates higher should push mortgage rates higher in the new year than the historical lows they have been at for years. The 30-year fixed-rate mortgage will likely end 2016 about 60 basis points higher than today's level, according to realtor.com predictions.

"That level of increase is manageable, as consumers will have multiple tactics to mitigate some of that increase," Smoke says. "However, higher rates will drive monthly payments higher, and, along with that, debt-to-income ratios will also go higher." The markets with the highest home prices will see the effects most.

5. Rents to go up even higher

Rental costs are skyrocketing, and they'll probably keep going up in 2016. More than 85 percent of the nation's markets have rents that exceed 30 percent of the income of renting households. "Rents are accelerating at a more rapid pace than home prices, which are moderating," Smoke says. "Because of this, 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 mortgage today."