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What’s ahead for the housing market in 2016

The housing market continues to lack young, first-time buyers

In mid-November, the National Association of Realtors gathered for a conference in San Diego to discuss where the housing market is headed in 2016. Economists discussed both the advantages and limitations that a buyer or mortgage investor could face in the upcoming year. The major takeaway: Despite growing concerns for rising property costs, home sales are expected to continue rising, albeit more slowly, in 2016. 

The forecast 
The star of the conference seems to have been Lawrence Yun, NAR's chief economist, who announced his prediction that the growth rate of home sales will indeed slow down in 2016. Yun predicted that the sale of single-family homes will rise from 5.3 million to 5.4 million. Noticeably absent from the pool of buyers, however, will be young first-timers. This group, facing historic levels of student debt, will continue to mostly avoid the market due to rising home costs and lack of loan eligibility.

The San Diego Tribune reported that Tom Salamone, NAR's president-elect, declared at the conference that the NAR is working to convince Bank of America to relax its mortgage eligibility standards for young people with student loan debt. Moody's Analytics Senior Director Cristian deRitis told the Tribune that the amount of outstanding loans in the U.S. has risen from $600 billion in 2005 to a whopping $1.3 trillion this year. 

"Despite growth, the housing market will face several challenges in 2016."

The problems ahead
Yun warned that, despite growth, the housing market will continue to face several significant challenges in 2016. He explained that the slowing growth is not surprisingly due to the rising property costs. In addition, the Federal Reserve is embarking on what Quartz referred to as its "greatest monetary experiment in history" – a plan to raise domestic interest rates – which will lead to a rise in mortgage rates for the first time in about nine years. 

Yun predicted that next year 30-year fixed mortgage rates will grow from 3.8 percent to 4.5 percent as a result. The Tribune reported that Yun also said the rise of interest rates "should be counteracted by the easing of credit score restrictions by Freddie Mac and Fannie Mae, also expected by the end of the year." This will help those with lower credit scores qualify for loans.  

Another problem to face next year, as explained by the National Association of Home Builders, is the fact that it is becoming increasingly difficult to afford the cost of homebuilding materials as well as the cost of the labor associated with building new homes. Additionally, while the economy is strengthening and unemployment rates are decreasing, NAHB reminds us that many of the jobs that have been added are low-paying jobs in the service industry. Housing market growth will slow but continue in 2016

Housing market growth will slow, but continue, in 2016

Why optimism remains strong
Yet at the same time, there is also some growing incentive for first-time buyers to take the plunge and invest in their first home. MarketWatch cited deRitis, who explained how increasing rent costs will slowly but surely motivate more and more young people to buy.

"The key driver there," deRitis said, "is we have 4.5 million more 18- to 34-year olds living with their parents than at the start of the recession. With rents rising and wages growing – and the parents pushing – that should send many into the housing market." 

Salomone reminded conference-goers that the biggest hurdle these young people face is qualifying for a mortgage loan. Impac Mortgage Corp. Correspondent specializes in correspondent lending. Its AltQM™ loans, along with its other products, were crafted to help those who may not otherwise qualify for a loan. While Salomone works with other mortgage investors to create more relaxed loan eligibility standards, Impac Mortgage Corp. Correspondent is here to help now.

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