I came across this article this morning written a month ago by a real estate economist. There is some very interesting information; take a look.

December 16th, 2015, by Jonathan Smoke, Realtor.com Economist

It’s almost the new year. Get ready to break out the Cristal: We had a great 2015—the best year for housing since 2007. And our forecast here at realtor.com® projects an even better year in 2016.

How so? Well, with economic growth chugging along, employment will continue to increase, meaning that people will have more money coming in and they’ll be able to buy their first home or upgrade to a new one.

Here’s a closer look at the trends that will have the greatest impact on the housing market in 2016.

1. We’ll return to normal (Anyone remember normal?)

The year ahead will see healthy growth in home sales and prices, but at a slower pace than in 2015. This slowdown is not an indication of a problem—it’s just a return to normalcy. 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. Distress sales will no longer be playing an outsized role, new construction is returning to more traditional levels, and prices rise at more normal rates consistent with a more balanced market.

2. Generational shuffle will make 2016 the best year to sell in the near future

Millennials emerged as a dominant force in 2015, representing almost 2 million sales, which is more than one-third of the total. This pattern will continue in 2016 as their large numbers combined with improving personal financial conditions will enable enough buyers between ages 25 and 34 to move the market—again. The majority of those buyers will be first-timers, but that will require other generations to also play larger roles.

Two other generations will also affect the market in 2016: financially recovering Gen Xers and older boomers thinking about or entering retirement. Since most of these people are already homeowners, they’ll play a double role, boosting the market as both sellers and buyers. 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. Together, these two generations will provide much of the suburban inventory that millennials desire to start their own families.

Assuming that most of these households will both sell and buy, it is important to recognize that 2016 is shaping up to be the best year in recent memory to sell. Supply remains very tight, so inventory is moving faster. Given the forecast that price appreciation will slow in 2016 to a more normal rate of growth, delaying will not produce substantially higher values, and will also see higher mortgage rates on any new purchase.

3. Builders will focus on more affordable price points

One aspect of housing that has not recovered yet has been single-family construction. Facing higher land costs, limited labor, and worries about depth of demand in the entry-level market, builders have shifted to producing more higher-priced housing units for a reliable pool of customers. That focus caused new-home prices to rise much faster than existing-home prices. Builders were able to be profitable and grow by following this move-up and luxury strategy, but their growth potential was limited by avoiding the entry level. That should begin to change in 2016.

We are already seeing a decline in new-home prices for new contracts signed this fall. In addition, credit access is improving enough to make the first-time buyer segment more attractive to builders. We’re looking for the strong growth in new-home sales and single-family construction as builders offer more affordable product in the year ahead. Consumers of all types should consider new homes, but availability will be highly dependent on location.

4. Higher mortgage rates will affect high-cost markets the most

We told you mortgage rates would go up in 2015, and they did—but they also went back down. We expect similar volatility in 2016, but the move by the Federal Reserve to guide interest rates higher should result in a more reliable upward trend in mortgage rates.

Thirty-year fixed rates will likely end 2016 about 60 basis points higher than they are today. That level of increase is manageable, as consumers will have multiple tactics to mitigate some of that increase. However, higher rates will drive monthly payments higher, and, along with that, debt-to-income ratios will also go higher. Markets with the highest prices will see that higher rates will result in fewer sales; however, across the U.S., the effect will be minimal as the move to higher rates will spur more existing homeowners to sell and buy before rates go even higher.

5. Already unaffordable rents will go up more than home prices

The housing crisis that politicians are ignoring is that the cost of rental housing has become crushing in most of the country. More than 85% of U.S. markets have rents that exceed 30% of the income of renting households. Furthermore, rents are accelerating at a more rapid pace than home prices, which are moderating. We’ve been seeing asking rents on vacant units increase at a double-digit pace in the second half of this year.

Because of this, it is 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.

This trend does not bode well for the health of the housing market in the future. It will only improve if we see more construction of affordable rental housing as well as more of a pathway for renters to become homeowners.

2016 Real Estate Outlook

Week one is done already! Welcome to 2016 and watch out because 2017 will be beating down the door before you know it. What is the outlook for 2016? Real estate has multiple trend lines to consider. There are national trends and local trends and they can be very different at times. There are leading markets and trailing markets as well spread out over the whole of country.

Wall Street Journal

California continues to be a leading trend for the western U.S. Here in the Pacific Northwest we should always keep an eye on California trends as they tend, and the operative word is "tend" to lead our market by several months up to a year or two. If California starts to slow down, the Pacific Northwest may continue robustly but will likely follow some months later.

National market conditions are a good starting point for long term analysis but short term is too local for the national trends to really matter. An exception would be a major national economic shift either positive or negative, such as the financial crisis and subsequent recession from late 2008 till late 2009.

This Case Schiller chart was part of an article by Renee Lightner, Andrew Van Dam and Nick Timiraos of the Wall Street Journal. The chart is interactive and allows for several major US Cities to be activated or deactivated, I chose to compare San Francisco and Portland. The dashed line represents the national average. This chart shows cumulative growth as a percentage not as a price value. Note that the point where San Francisco and Portland cross on the chart does not mean that home values were equal but rather that the relative value compared to the starting point in 2000 was the same. So a SF house that started at $500k in 2000 would be $825k in 2008 where the two cities cross. Likewise that same house in Portland may have been $300k in 2000 and it would be at $495k at the crossing point in 2008. The same relative cumulative increase in value. At no point in this period did actual median home values in Portland exceed those in San Francisco, not even close, really.

Here you see the typical California excess of rapid growth and hard falls and that the Golden State tends to lead our market This chart shows the San Francisco market peaking in late 2005 where as Portland peaked in the summer of 2007. The Bay Area had a rapid hard crash whereby Portland had a moderate crash and a slower decline that eventually caught up to San Francisco. There was even a little teaser growth that occurred after the 2009 bottom climbing a bit till mid 2010, and then another decline that nearly matched the 2009 bottom in 2012. San Francisco's second bottom came early in 2012 and Portland's first bottom followed a few months later. Once again a huge steep rebound has occurred in SF, where Portland has had a moderately steep increase. San Francisco is starting show a flatter curve and that may indicate a slow down in Portland within a year.

Wall Street Journal

More locally and in specific, Clark County, WA, we have something a little different than our southern neighbor, the Rose City. We have a booming new housing market. In the $300-$400k price range new construction is keeping a lid on resale growth.The sub median market remains fire hot as builders are not building much in this lower price range and sellers seem to be hanging on to the properties in the sub-median range. Meanwhile in built-out Portland the resale market is much stronger. There isn't much new housing going on in Rip City.

The crazy rental market certainly is playing a role in the entry level housing market as investors are hanging on to cash cow rentals rather than taking profits on sale. This creates demand as renters want to own but owners want to hold. This is not sustainable. Right now $225k buys a very modest house but $260k buys something much more substantial in the resale market.

The bottom will have to slow down soon unless the middle and top start to grow at a similar rate, I don't see that coming. National statistics on home sales by unit volume show that we are actually pretty healthy and somewhat sustainable. But locally we are seeing some price fatigue as buyers at the entry level are once again becoming priced out. Economic faith is not strong enough for middle income buyers to gamble on the 'big house' like they did in 2004-2007. Lenders are not quite as flexible either, so the middle high end is not growing as fast as the bottom. The bottom end has a price ceiling based on the middle. All else being equal buyers, will not pay $240k for a 3 bed 1 bath home if $245k buys a 4 bed 2 bath. Here in Vancouver USA we are getting close. I just listed and sold a 3 bedroom 1 bath house recently remodeled, so it was clean, for $225k and there are nearby listings in the area for nice 4 bedroom homes with 50% more living area selling at $250k. The bottom has grown much faster than the middle and we are nearing the point at which either the bottom stops rising or the middle has to pick up momentum. I don't foresee any drastic changes for 2016. Presidential election years tend to be flat economically and housing will likely continue to mosey along at a nice clip. Lending rates may see some increases but honestly I have been predicting that for 4 years and still rates are low. What the heck is up with that? This market can easily continue to function well with a rate increase from the current 4% 30 year fixed to 5.5%. Historically anything under 6% is a GREAT rate. If rates were to hit 6% the bottom of the market would probably see a slight decline as a fair percentage of buyers would be eliminated and that would reduce the stress on the entry level. The middle and high end market would likely be fine however.

I think we will see a continuation of appreciation in the market place but at a reduced rate in the 3-6% year over year range. This is a healthy condition and allows housing to remain in reach. More than six percent increase leads to bubbles as incomes rarely rise at that kind of pace. So as the politicians tear each other apart, real estate will likely just be-bop along.

That's my take anyway, check out the Wall Street Journal article these charts came from, it is a good read.    

Happy New Year!

2016 Looks promising for the real estate market as interest rates are likely to remain fairly low. There could be some upswings in the rates but not likely will they be a detriment to the housing market. Resale housing should remain strong in the sub-median market where as the higher end by see some minor stagnating. As the first weeks of this new year wear on some additional information will be offer as to the outlook for the real Estate Market in the upcoming year.

Happy New Year!