Five 2016 Housing Market Predictions

Most economists agree that housing prices and sales will continue to grow in 2016, just at a slower pace. Call it a slowdown, but not bad news. Moderate growth is more sustainable, and better for buyers.

Next year holds a few interesting developments, some good for housing, some bad. Easier credit will bring in more buyers, but higher mortgage rates, continued low inventory and the wildcard of a presidential election will weigh down growth. Full Article 

Prediction 1: Prices and sales will grow half as fast  As price growth ebbs and mortgage rates rise, more homeowners will stay put. Sales will grow about half as fast as they did this year and prices will rise at a more normal 3.5 percent to 4.5 percent, down from almost 6 percent this year.

Prediction 2: Easier Credit  Americans for whom a mortgage has been just out of reach will have a better shot at qualifying for one in 2016.

Lenders will embrace new ways to measure creditworthiness and mortgages will evolve to serve a changing American household. For example, credit scores will better evaluate a person’s rental history and utility bill payments. More loans will allow buyers to include income from room rentals, live-in parents and extended-family members.

We think enhanced credit access will offset the expected increase in mortgage rates.

Prediction 3: More (and Older) First-Time Buyers  We expect first-timers to make up a bigger portion of the market than they did this year. The reason is simple: The market will be more welcoming to them thanks to the aforementioned slowing price growth and easier access to loans. This year’s market dropouts have saved for bigger downpayments and will be ready to give the market another shot early next year. And more of those millennials who had been holding off on buying for various reasons will finally be ready and able to in 2016.

Prediction 4: Slower market, slowing closings  The 2015 housing market was the fastest we’ve seen at Redfin. From January to October, the typical home was on the market for 36 days, four days faster than the same period in 2014. We expect the market to slow in 2016 as government-backed loans become more common and cash sales become less so. Because of low inventory, bidding wars will still be in force next year, but there will be a lower ceiling on price escalation as 2016 buyers won’t be willing or able to go as high as buyers have in recent years.

Prediction 5: Continuing Inventory Shortage  The biggest risk to the 2016 market will be the continuation of inventory shortage, especially in the affordable segment of the market. The number of homes for sale shrank from 2014 to 2015 in 45 of the 60 metro tracked by Redfin. Inventory across all 60 metros is down 4 percent from a year ago.

Despite dramatic growth in home values in recent years, many homeowners who might otherwise like to move can’t because they still don’t have enough equity. Although the second quarter of 2015 saw improvements in home equity nationally, 9 percent of homeowners are underwater on their mortgage and another 18 percent don’t have enough equity to refinance or get a new loan.

And for those who have built solid equity and locked in a low mortgage rate, the upcoming rate hikes will only lessen the appeal of selling and getting a new loan on their next home.

Even though there are signs of life in new construction, much of the new building will be focused on rentals. Less than two-thirds of new construction is targeted for single-family homes, despite growing demand for affordable homes by next year’s buyers.

7 Top Home-Buying Mistakes You Should Avoid

Purchasing a home is one of the biggest decisions you will make and there is a lot of stress that comes with it. If you can avoid these seven mistakes the process will be a lot easier.

What other tips do you have for someone purchasing a home? Full Article 

1. Don’t … buy a house if you’re planning to move again soon.  If you’re a renter, it can be frustrating to write that rent check every month and have no home equity to show for it at the end of the year. But if you aren’t certain that you’re going to stay put for a few years, it’s probably not the right time to buy—equity or no equity. “Some people tend to buy a house knowing that they’re going to be relocating after a few years,” says LearnVest Planning Services certified financial planner Ellen Derrick. “Don’t buy property and automatically assume that you’ll be able to rent it out or sell it when you move.”  

What to do: If you aren’t in an area with a strong rental market that would allow you to cover the mortgage on your home if you move elsewhere, then stick with a rental for now.

2. Don’t … bust your budget. Shopping for houses can make you a little giddy. Look at this one! And this one! For a little bit more, you could get granite countertops, plus an office nook! You’re dealing with such large numbers when you’re browsing real estate that it might not seem like such a huge deal to stretch another $10,000 or $15,000 to get the home you really love. But that’s not a game you want to play. “People look at the top end of their affordable monthly payment, and they don’t really think about what happens if their income goes down or they have to change jobs,” says Derrick. (If you’re wondering what percent of your budget should go toward housing, check out the 50/20/30 Rule.)  

What to do: Get preapproved for a mortgage. Not only will this prove that you’re serious to your realtor and to home sellers, but it will also give you an idea of your upper limit. “Remember that the lender is there to make you a loan, and the more money you borrow, the better it is for them,” Derrick says. “They want you to max out. I would take the pre-approval number and cut about 20% off.”

3. Don’t … forget about added costs.  Buying a home isn’t just a matter of replacing a rental payment with a mortgage payment. There are also maintenance costs, utilities (which will likely cost more) and property taxes. “People tend to forget about both property taxes and insurance when they’re thinking about how much house they can afford,” Derrick says. “The actual monthly payment could end up being well out of your price range when you figure those things in.”  

What to do: Ask the homeowners about their average utility costs and property taxes, get a homeowner’s insurance quote and budget about one percent of the home’s purchase price for annual maintenance. Then run the numbers to see if you can afford the home. (And don’t forget about closing costs. The average cost to close on a $200,000 mortgage is about $3,754, according to Bankrate.com, but your broker should be able to give you an estimate.)

4. Don’t … put down a nominal down payment.  Even with lenders tightening requirements to qualify for a mortgage, it’s still possible to buy a house with as little as 3% down. That’s not necessarily a bad thing, but it does mean that you’ll have very little equity in your home when you first move into it. So if something comes up, and you have to sell, you’ll end up owing more than you can get out of the sale once you factor in closing costs. It puts you in a precarious position. Even if that doesn’t happen, you’ll have to pay private mortgage insurance (PMI) every month until your equity in the home exceeds the 20% mark—and that could take years. (If you can’t put 20% down, your loan is technically considered risky—PMI is insurance that protects the bank if you default on your mortgage.)  

What to do: Consider whether it’s prudent to buy a home now if you’re nowhere near having a 20% down payment. Yes, interest rates are low, but if you have to borrow thousands more because you don’t really have a great nest egg, it may be a wash in the end. You could avoid years of PMI, and owe a lower monthly nut, if you spend a year or two saving aggressively toward a down payment.

5. Don’t … neglect to get everything in writing.  You wouldn’t be the first home buyer to assume that the kitchen appliances come with the deal—only to discover an appliance-free kitchen on the final walk-through. “I’ve heard of buyers going ten rounds because the seller took the drapes down, and the buyer expected them to be left,” Derrick says. “I’ve seen all kinds of deals blow up over stuff like that.” Common points of contention: window treatments, hot tubs, light fixtures, shower and bath fixtures, ceiling fans and big appliances, such as washers and dryers. Replacing something you thought was staying could cost hundreds, so it’s not a small thing.

What to do: Go through your contract with a fine-toothed comb. If the item that you expected to be there isn’t, ask about it—and get it added in writing.

6. Don’t … skip the inspection.  Even if the home looks like it’s in winning shape, it would be foolish to skip a thorough once-over by a professional. “People tend to think that the inspection and the appraisal are the same thing,” Derrick says. “They’re not.” An inspector is there to spot the things you don’t know to look for, like if the chimney is in great shape or whether those little cracks in the foundation are a big deal. He’ll look for signs of water damage and check the insulation in the attic. If there are conditions that will need repair, you may be able to negotiate with the seller to drop the price. In other words, the inspection is worth every penny.  

What to do: Get recommendations from your realtor or friends who’ve bought in the area, and have a professional inspection done before you close on the house.

7. Don’t … think a brand-new home entitles you to brand-new everything.  “A lot of people buy this nice house, and then look at the ratty car sitting in the driveway and think, ‘We better buy a new car,’” Derrick says. Or you suddenly have a formal living room but no formal living room furniture—so you buy some! It’s a mistake to feel like you suddenly have to upgrade all of your stuff to match the shiny new home. “You don’t want to get yourself into a pile of credit card debt just so you can keep up with the house,” Derrick says.  

What to do: Live in your house for a while, so you can figure out what you really need. Then save up for it!

Martin Luther King Jr

35 Ways You Can Spend to Save in 2016

Being a savvy shopper makes you a smart saver.   Should college be free for everyone? Yes No Advertisement  Powered by  credit card and computer MORE 5 Money-Saving Tools to Try Before You Buy Anything Why Millennials Are Saving at a Younger Age Than Any Other Generation How to Tell If You Can Retire on Your Savings According to a recent survey by Fidelity, year after year Americans’ top financial resolutions are to save more and spend less. While the impulse to save is a good one, the fact that people are making the same resolutions each year suggests they aren’t sticking to their promises. Fortunately, there are steps you can take to make 2016 the year you succeed.

“There are hundreds of ways to save money, but if you want to be good at it, it needs to become a habit, a mind-set, a lifestyle,” said Brent Shelton, a shopping expert with the deal site FatWallet.com. “Once it’s ingrained in the way you spend, it will get a lot easier, you’ll get smarter and find bigger and better ways to save.”

1. Take Advantage of Deals in the New Year

January is a bargain-hunter’s paradise. For example, you can save up to 90 percent on holiday décor during after-Christmas sales, according to Teri Gault, money-saving expert and CEO of TheGroceryGame.com. Winter coats, apparel and outdoor gear also tend to be deeply discounted after the holidays. Additionally, Gault recommends using January sales to shop for home goods like sheets, bedding and furniture.

2. Embrace Mobile Shopping

If you want to save money in 2016, it’s wise to take advantage of mobile shopping opportunities. According to Benjamin K. Glaser, features editor with DealNews.com, mobile shopping is one of the fastest-growing areas of retail, and sellers are pushing their mobile apps harder than ever before.

Not only do these apps provide an easy way to shop, but retailers often offer users exclusive discounts and savings. Still, Glaser cautions shoppers against making impulse purchases. For best results, only take advantage of deals for items you actually need.

3. Watch Out for Rising Prices

Experts advise consumers to adjust their shopping lists in 2016, as the prices of several grocery items are expected to rise in the New Year. According to Glaser, eggs will be more expensive because the poultry industry is still recovering from an avian flu outbreak. Further, rates for full-fat dairy products will climb with demand because of data showing low-fat diets aren’t necessarily better. Extended drought conditions will also lead to shortages of almonds, avocados, chocolate and – say it isn’t so – coffee, causing price hikes.

To counter rising prices, you can limit your purchases of these items, stock up when they do go on sale, look for lower-priced brands and purchase conventional, rather than organic, options.

4. Negotiate With Service Providers

Head off rate increases for services such as cable TV in the New Year by taking the time to call your providers.

“Ask about any new promotions you may qualify for when old ones expire,” said money-saving expert Andrea Woroch. For example, you could save money by bundling your cable TV and Internet services or going paperless by setting up automatic bill payment.

5. Cut the Cost of Your Smartphone

Many people try to save money by signing up for wireless plans with less data. However, if you regularly exceed your data allotment – and get hit with fees as a result — your cost-cutting efforts might backfire. To avoid data overcharge fees in 2016, you can use the free My Data Manager app to track your data use and alert you before you go over your limit.

On the flip side, you might have overspent on wireless service in 2015 by paying for more data than you actually used. To find out how much data you’re wasting, you can use an app such as Onavo Count or 3G Watchdog to monitor your data use. You also can visit MyRatePlan.com to find the right mobile plan based on the number of minutes, messages and data you use.

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4 Reasons 2016 Is The Year To Buy A Home

If you've been on the fence about buying a home, 2016 is the year to take the plunge.

Mortgage rates have been bouncing around record lows for a while now. But even though they're likely to start going up, you haven't missed your chance to get a deal on a house.

A number of factors are coming together, making next year a good time to buy:

1. Home prices will finally calm down Real estate values have been on the rise for a while, but are likely to slow their pace next year. Prices are expected to rise 3.5%, according to Zillow's Chief Economist Svenja Gudell.  Full Article

Buyers who've been stuck behind the wave of rising prices may finally get the chance to jump in.

And that could lead to a flood of buyers, said Jonathan Smoke, chief economist at Realtor.com. "We have the potential for about six million home sales just through the months of April through September; that is basically impossible to do," he said.

Despite the slowdown, Zillow still expects home values to outpace wage growth, which can make it tough to afford a home, especially for lower-income buyers. Plus, prices in the country's hottest markets -- like San Francisco, Boston and New York City -- aren't expected to pull back as much next year.

2. More homes will hit the market The slowdown in home prices will prompt more owners to list their homes, Smoke said, giving buyers more choice.

"Because of the price appreciation they have experienced, you will have more sellers put homes on the market next year," he said.

The new home market is also expected to grow in the coming year with builders focusing more on starter and middle-range homes, which will also boost inventory and make it easier for buyers. With more homes on the market, bidding wars will become less common and prices could ease even more.

3. Dirt cheap mortgages could disappear The Federal Reserve is widely expected to begin increasing interest rates soon, which means the window for record low mortgage rates is closing. While rates are expected to go up gradually, higher rates push up borrowing costs and monthly mortgage payments. "You are likely to get the best rate you will possibly see, perhaps in your lifetimes through the majority of next year, but certainly, the earlier the better," said Smoke.

4. Rents will still hurt Rent prices are expected to continue to climb in the new year, which means in most cities, buying will be cheaper than renting. Even though mortgages could get more expensive, buying might still be the better deal. Interest rates would need to rise to around 6.5% for the cost of buying to equal that of renting on a national level, according to Ralph McLaughlin, housing economist at Trulia.

How Do Homeowners Accumulate Wealth

The differences between buying and renting are massive.  According to the Federal Reserve, a typical homeowner’s net worth was $195,400, while that of renter’s was $5,400.  The data reflects 2013 and the next survey of household finances, which is conducted every three years, will be out in 2016.  Based on what has happened since 2013 and projecting a conservative assumption of what could happen next year to home prices if we see only 3% price growth, the wealth gap between homeowners and renters will widen even further. The Fed is likely to show a figure of $225,000 to $230,000 in median net worth for homeowners in 2016 and around $5,000 for renters. That is, a typical homeowner will be ahead of a typical renter by a multiple of 45 on a lifetime financial achievement scale.  Full Article

Though there will always be discussion about whether to buy or rent, or whether the stock market offers a bigger return than real estate, the reality is that homeowners steadily build wealth.  The simplest math shouldn’t be overlooked. A vast majority of homebuyers take out a 30-year fixed rate mortgage to make a home purchase. After 30 years, there is no mortgage payment (nor rent payment). So the home price growth over that time period would be the equity that the homebuyer would have accumulated. For example, the median home price of a single-family dwelling in the U.S. thirty years ago in 1985 was $75,500. This year, it will be at least $220,000. That figure of $220,000 is the housing component of the person’s wealth. Even had home prices not risen, the person would still have $75,500 in wealth today – on top of not paying any further monthly mortgage after 30 years.

This simple example does not play out nearly as neatly in the real world, since people do not stay in one residence over the 30 year period. Almost all homeowners trade up, change neighborhoods, or move to a better school district at some point. However, they are able to make those residential relocations due to the housing equity accumulated, even over a shorter period, and can immediately apply that equity to the next home as a downpayment. Therefore the conditions of steadily building housing wealth still hold.

We also know that not everyone can or should be homeowners. The memories of easily accessible subprime mortgages and subsequent harsh foreclosure pains are still fresh, and remind us of the devastating impact on the families involved, local communities, and to the broad economy. In addition most young adults have not developed the financial standing or have found a stable, desirable career and, therefore, choose not be homeowners until later.  The homeownership rate among households under the age of 35 is 35% currently and rarely rises above 40% historically. For those under the age of 25, the current ownership rate is 23% and rarely rises above 25%. But the time will eventually come when people want to convert to ownership. By the time people are in their prime-earning years of 45-to-55, nearly three-fourths do eventually become homeowners. By retirement, nearly 80% are homeowners.

A recent survey of consumers commissioned by my organization revealed that 80% believe that purchasing a home is a good financial decision (2015 National Housing Pulse Survey). Most consumers appear to already understand the simple math and the benefits of homeownership. So don’t overthink the matter of whether now is a good time to buy, or whether stock market returns will be better. The exact timing of a home purchase will have little financial impact in the big scheme of things. Just know that homeowners generally do come out ahead of renters in the long run.