Investor Intel: 2016 (and Interest Rates) Lift-Off
This week, the talk around Wall Street water coolers is the strong probability interest rates will start their gradual rise after the Fed meeting Wednesday, Dec. 16th. U.S. economic fundamentals are strong. According to the Bureau of Labor Statistics, job creation increased by a more-than-expected 211,000 in November, while the unemployment rate was unchanged at 5 percent. Wages, however, are still relatively stagnant, having risen on average 2 percent a month since 2012, while home sales prices have averaged 9 percent. Altogether, rising interest rates and stagnant wages could mean more Americans choosing to rent.
The demand for rentals is already through the roof. A recent study by Harvard University’s Joint Center for Housing Studies found there are now 9 million more renters in America than a decade ago, the biggest jump in renters on record, while rents increased 7 percent between 2001 and 2014. We’ll have a full report in our December NewsLender, to be released on Thursday the 17th, so be sure to check it out.
In the spirit of looking ahead to a new year, here’s a peek at what the insiders are saying about housing in 2016:
“[H]ousehold formations should add significantly to housing demand. Improving labor markets propelled an acceleration in the formation of new households last year, and we should see more than 1 and a quarter million net households formed in 2016, and most new households will want rental homes. This leads to the third feature of the 2016 housing market, continued strong demand for rental homes, both apartments and houses. Rental vacancy rates are at or near their lowest levels in 30 years, and rents are rising quicker than inflation. These market conditions will likely continue in 2016…” -Frank Nothaft, chief economist for CoreLogic
“Credit will remain tight in 2016…This means that rental properties will continue to be in high demand causing ever increasing rents…” -Lynn Effinger, president of Effinger Consulting, for HousingWire
“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.” -Jonathan Smoke, chief economist for realtor.com
“In 2016 and 2017, housing construction will increase and home prices will rise.” -Bill Conerly, economist, for Forbes
“While demand for homes in [California] may continue to push higher in 2016, an increase of mortgage rates to 4.5 percent would actually push the rent vs. buy math close to renting in the Bay Area, Sacramento, Calif., Ventura County, Calif., and San Diego… [I]f the economy surges and younger workers quickly get pulled into the workforce, new household formation may outpace supply and rents increases could continue.” -Ralph McLaughlin, economist for Trulia
“Long term, there are signs of a structural shift in the housing market toward renting over home ownership…” –BofA Merrill Lynch Global Research 2016 outlook
Cheers to a healthy and happy year ahead!
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