Of course, no housing expert has a crystal ball, but Svenja Gudell, recently appointed chief economist for the housing site Zillow, has looked at enough data to make a pretty good guess.
She examines vast amounts of housing market statistics – everything from about where people are going to want to live to what areas will be hot to what the future could hold for renters – on a daily basis.
According to Zillow, housing prices are rising but wages are stagnant, meaning 2016 is likely to be a year of worsening affordability for homebuyers, especially low- and middle-income earners. That’s bad news for many people hoping to buy a home for the first time. But for investors looking to put their money into rental properties, these economic conditions point to continued strength in that market.
Gudell recently commented in article with Mitch Lipka, of Reuters, that she believes the markets to watch in 2016, based on the combination of unemployment, population growth and the home value growth, are Boise, ID, Salt Lake City, UT, and Omaha, NE, will stand out.
Denver, Seattle, Dallas/Fort Worth and Portland, where inventory has been declining in the last year and demand continues to rise, will also be hot locations in 2016.
But don’t give up on other cities still recovering from the recession. Cities are pretty good at reinventing themselves. There’s a city out there for everyone.
Gudell also determined that cities have fairly low inventory. So this year, first-time home buyers will be looking at suburbs – not just any suburbs, but those that are more dense, more walkable.
There will also be an uptick in the number of condos being sold – especially for first-time home buyers. For a lot of folks, life happens not just inside their four walls but outside of them. Location, cost itself and nearby amenities will be most important.
She also maintains that millennials are going to be bigger and bigger buyers in the market going forward. They’re taking their time getting to the market and buying a home. They’re getting married later on in life. They’re having children later on in life. So they’re making home buying decisions later on in life.
One issue is that inventory is very low, especially on the bottom end of the price distribution. There are very few of those available, especially in these markets that have the most jobs. That’s particularly the case on the coasts. It’s a challenge for them. It’s a tough market. There is a lot competition.
To piggy-back Gudell’s predictions, Forbes recently shared a report on how to find out where investors might get the best bang for their housing buck, and where aspiring homeowners have the best prospects of making an economically sound purchase. Local Market Monitor screened the 100 largest Metropolitan Statistical Area and Divisions, all with populations of at least 600,000, for characteristics that make for good investments. Each Best Buy City on their list (including Grand Rapids, MI (#1), Orlando, FL (#2), three in Texas, and newly added Seattle, WA (#9), Nashville, TN (#13), Madison, WI (#17) and more) boasts healthy job growth, strong population growth, and anticipated home price appreciation. The majority of the cities are still considered undervalued; home prices in seven of the 100 cities are now a bit overheated–though not enough to make them risky.
To assess whether home prices are over- or undervalued, Local Market Monitor crunches local income and housing data to come up with an “Income Price,” which represents what the average home price for a particular market would be without distortions in the market (such as the recent housing crash, or heavy investor speculation). The idea is that there’s a relatively stable relationship between local home prices and local salaries; investors who buy when homes are priced below the Income Price are more likely to make a good return.
If you’re thinking bigger, consider what larger firms are turning their 2016 focus to.
According to institutionalinvestor.com, some real estate investing firms, such as Brookfield Asset Management and Longpoint Realty Partners, are riding the reurbanization trend and aim to capitalize on new growth in U.S. city centers.
Demographic shifts have breathed life back into U.S. cities, forcing local governments to update zoning rules and improve public transportation. In the wake of the 2008-’09 financial crisis, younger workers sought city centers with higher job growth, and empty nesters left the suburbs to rejoin the action downtown. This migration has created an opening for real estate investments that find new uses for old buildings. “What we’ve seen in the past ten years, is a change in the way we work, a change in commerce and a change in demographics,” says Dwight Angelini, founding and managing partner of Longpoint Realty Partners. “Each of those has an impact on real estate.”
First-time investors, seasoned investors, large or small… 2016 looks positive for investors. According to the 2016 Emerging Trends in Real Estate, which was just released by the Urban Land Institute, the outlook for the next 12 months is rosy, with one analyst going so far as to call it “doggone good.”
Go out and get your piece of it!