Home / Daily Dose / Could The Second Half of 2016 Spell Trouble for Housing?
Print This Post Print This Post

Could The Second Half of 2016 Spell Trouble for Housing?

Rates BHRealtor.com’s Chief Economist, Jonathon Smoke, said in a recent report that though the first half of 2016 was good for the housing market, looking into the rest of this year and into 2017, the housing market might not be sitting as pretty.

Smoke reviews the housing market for the first half of the year, noting that the total home sales were up 5 percent compared with the first half of 2015, median existing home prices were up 5 percent as of June, setting a new record, and overall, the housing market had the best spring in a decade.

Despite these positives, Smoke does not expect these conditions to last throughout the second half of the year. One of the attributing factors to his assessment is the demographic trends seen in the market this year.

“All ages have been tempted by near-record lows in mortgage rates prompted by global economic weakness and instability driving investors toward U.S. bonds,” says Smoke. “As demand for bonds goes up, so does their price, and mortgage rates go down.”

Even with this demand, Smoke distinguishes that the market can only grow so much with the limit in home inventory, and with today’s pace of sales, data reveals that potential buyers were up 13 percent yet available homes for sale were down 5 percent.

Because of this, Smoke shares that it is likely to close to the limit of how fast inventory can turn over when without substantial growth in existing and new-home inventories, sales growth will potentially flatten and even decrease.

“Those low mortgage rates that have given sales a boost throughout spring and summer may have already bottomed out,” says Smoke. “The average 30-year fixed rate is now 3.45 percent, up more than 10 basis points from the lowest point this year on July 6.”

Smoke shares that he is concerned about news in September influencing rates upward such as how mortgage rates move just before and after the August employment report on the Friday before Labor Day on September 2, 2016. He also says that it is important to pay close attention to the “Fed meetings” on Sept. 20–21 because even if no policy change is announced, they could use language in their statement that strongly hints at an increase in October.

Another factor contributing to the potential change in the market is the presidential election coming up in November. Smoke believes that because this election season is already loud and contentious, and likely to get more so, the political rhetoric could weaken consumer confidence until the election outcome.

All this in account, Smoke does not believe this means 2017 will be bad. He says that as long as rates do not increase substantially in a short period of time, the housing market should remain strong. He attributes this to a stronger economy which will offset the impact of marginally higher rates.

“A stronger economy, more jobs, lower unemployment, and higher wages will power demand,” says Smoke. “Higher rates will also likely help loosen credit. Those positive conditions coupled with demographic tailwinds from millennials and boomers will keep the U.S. housing market healthy and strong for at least two more years.”

About Author: Kendall Baer

Kendall Baer is a Baylor University graduate with a degree in news editorial journalism and a minor in marketing. She is fluent in both English and Italian, and studied abroad in Florence, Italy. Apart from her work as a journalist, she has also managed professional associations such as Association of Corporate Counsel, Commercial Real Estate Women, American Immigration Lawyers Association, and Project Management Institute for Association Management Consultants in Houston, TX. Born and raised in Texas, Kendall now works as the online editor for DS News.

Check Also

The MSR Market Is Soaring, But Challenges Await

Buyers in the MSR market are finding great deals at this time, but these rewards may come with great risk as Allen Price of BSI Financial Services explains.