Our focus is on home sales in Marin County, but it is often helpful to examine national trends as well as it affects sales here. Here is a brief overview of the national picture. Our market usually leads the national market, and the strong upsurge we have had for the last three years is expanding nationally.
The National Real Estate Market is primed for expansion in 2016, driven by millennials buying for the first time. And with unemployment steadily decreasing, orders for new durable goods increasing 3 percent, inflation staying level, and income beginning to grow, the Fed has decided to raise interest rates. The rate increase signals that our economy is getting stronger.
Millennial Home Buyers
In 2015 home sellers saw an increase of first-time home buyers enter the housing market because of the growing segment of millennials between 25 and 34 years of age. The Census Bureau projects that the population of millennials aged 25 to 34 will increase by an average of nearly 500,000 per year in the second part of the decade. Also, NAR’s inaugural quarterly Housing Opportunities and Market Experience survey reported that a large majority of millennials between 25 and 34 years of age who rent want to own a home in the future.
The Federal Reserve raised short-term interests last month. Freddie Mac reported that the average commitment rate for a 30-year, conventional, fixed rate mortgage stayed below 4 percent. Currently in Marin, lenders are still offering conventional mortgages at 3.65%, and jumbo loans at 3.75%!
Mortgage rates are expected to rise to 4.50 percent by the end of 2016, but this rate is still historically low; a full percentage point below the rate during the recession of 2008. The low fixed mortgage rate should help spur demand and encourage first-time home buyers.
Mortgage Lenders & Home Buyers
Fannie Mae’s fourth quarter 2015 Mortgage Lender Sentiment Survey™ shows that lenders expect to ease mortgage credit standards for GSE-eligible loans and government loans over the next three months. This should reduce the affordability problem for first-time home buyers. As a result, this will help young adult homeownership. Although home prices will be high, all of this is good news for home sellers because they should expect an increase in demand for their home.
In 2016, the first-time home buyer will have mortgage credit options available that were not available during the housing down-turn. Options available include FHA loans and the conventional 97 percent program offered by Fannie Mae. Qualifying first-time home buyers need only to put 3 percent down on a home.
According to the Mortgage Bankers Association weekly survey, the Refinance Index increased 8 percent compared to the previous week. If you’re a homeowner with an adjustable-rate mortgage or a variable home equity line of credit, you should expect your rates to rise in 2016. The first part of 2016 will be a good time to refinance. Home equity lines of credit (HELOC) are both fixed and variable. Variable HELOCs are tied to the Federal Reserve prime rate. By refinancing early in 2016, you could more easily afford major life events that may occur such as daughter’s wedding, high college tuition, or home renovation.
The National Real Estate Market is expanding. The Federal Reserve raising interest rates indicates optimism in the housing market and the economy as a whole. The 2016 housing market will remain a sellers market that should see an increase in first-time home buyers entering the market because of the strong desire of homeownership by millennials 25 to 34 years of age, and easing credit standards and increases in wages. Homeowners with variable mortgage rates should expect their rates to rise in 2016, but early 2016 will be a good time to refinance so that you’re that you won’t feel the brunt of further interest rate increases.
What About Marin County?
We’ll publish our annual update on Marin County next week, but we expect continued strength in 2016, just not the huge increases we have seen the last two years.