What will it take for the housing market to hold steady in 2016?

Forecasts for the 2016 housing market are starting to trickle in, and realtor.com is one of the first analysts to predict that next year’s market will be a picture of “moderate, but solid growth.” According to Move Inc.’s online real estate services provider, existing home sales and prices will slow to about 3 percent year-over-year due to the Fed’s expected interest rate hike to 4.65 percent, as well as tight inventory, affordability concerns and continuing tight credit standards.

Key Takeaways

Existing home sales and prices will slow to about 3 percent year-over-year growth in 2016, and homeownership rates will decrease slightly, according to realtor.com.
Sales in 2016 will be driven by three homebuyer segments: older millennials, young Gen Xers and retirees.

According to Move Inc.’s online real estate services provider, existing home sales and prices will slow to about 3 percent year-over-year due to the Fed’s expected interest rate hike to 4.65 percent, as well as tight inventory, affordability concerns and continuing tight credit standards.

Realtor.com: Existing home sales and prices will slow to about 3% year-over-year.

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The national homeownership rate will decrease slightly to 63.3 percent from the 63.4 percent that realtor.com is predicting for the fourth quarter of this year.

Total sales of existing and new homes will reach 6 million for the first time since 2006, new home starts will increase 12 percent and new home sales will grow 16 percent, but it will take continued growth in both the gross domestic product and the job market to get there.

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Specifically, it will take a 2.5-percent increase in the GDP, 2-percent growth in household income, a 1.5-million increase in household formation and a 4.8-percent decrease in unemployment in order for the market to hold steady, realtor.com said.

“Next year’s moderate gains in existing prices and sales, versus the accelerated growth we’ve seen in previous years, indicate that we are entering a normal, but healthy housing market,” said Jonathan Smoke, chief economist for realtor.com. “The improvements we’ve seen over the last few years have enabled a recovery in the existing home market, but we still need to make up ground in new construction, which we could begin to see in 2016.”

Sales in 2016 will be driven by three homebuyer segments: Older millennials who are 25 to 35 years old; young gen Xers who are 35 to 44 years old; and retirees 65 years old and over, realtor.com predicts. In particular, millennials, who may represent up to 30 percent of the existing home market, will use an expected increase in income to seek out homes in safe neighborhoods that offer short commute times.

Markets that can expect to see a surge in demand thanks to growing household formation, a prosperous job market and low unemployment rates, as well as large populations of millennials, young gen-Xers and retirees, are: