What Are We To Expect In The Real Estate Market For Q1 2016?
The worlds economies are struggling as of late due to a slumping Chinese market. Oil prices are also down, causing many sectors to go along with it. Houston, in particular, forecasted that slumping oil prices would affect the real estate market in the city, but has since affirmed that the housing market has held steady despite the market conditions and oil prices dropping.
So, what can we expect in Q1 2016?
No one knows for sure, especially with the potential that the Federal Reserve may still raise interest rates in 2016, but we can look at past data from Q3 and Q4 to forecast what the market may be like this quarter.
Rising Markets with Some Cities Falling Fast
Its important to note that a rising market doesnt mean that a particular citys market is doing well. A great example of this was seen in Q2 of this year. Year-on-year growth in the second quarter of 2015 was 8.2% nationally. Homes that were worth $100,000 were now worth $108,200 in just a year.
From an investment standpoint, this is substantial growth in just one year. But, there were some markets that continued to struggle, with many going into negative territory on the year. Which markets performed the worst?
1. Farmington, New Mexico: The housing market dropped by 4.3%, with the median home price being $176,600.
2. New Haven, Connecticut: Median home prices were down 5% to $218,100 in Q2.
3. Cumberland, Maryland-West Virginia: A town on the border of two states. The median home price dropped to $82,400, down 17.1% on the quarter.
As you can see, a lot of the markets suffered, but the markets that did well saw amazing growth over the same period. Lets take a look in comparison to the top 3 cities with the most market growth:
1. Sebastian-Vero Beach, Florida: Home prices rose 19.4% to a median price of $191,000 for a home.
2. Port St. Lucie, Florida: Home prices rose to a median of $184,000, up 20.3% year-to-year.
3. Palm Bay, Florida: Median home prices in Q2 were up 20.4% in the city to $165,000.
Interestingly, the other two cities in the top 5 were both in North Carolina.
Foreclosures Will Continue to Rise
The first three quarters are when the housing market is at its strongest, with the number of homes on the market almost doubling. When the end of Q4 nears and the beginning of Q1 hits, this is when the market slows down.
Data just released by realtytrac.com shows that Q3 and September 2015 foreclosures are up. How many foreclosures were accounted for at this time? A total of 327,258 foreclosure filings were listed in the third quarter. This number is 5% less than Q2, but still up 3% year-on-year.
Analyzing the data presented, the last two quarters, Q2 and Q3 respectively, noted an increase in foreclosure activity for the second straight quarter. Prior to Q2, the U.S. had 19 straight quarters where the number of foreclosures declined.
The good news is that the number of properties starting the foreclosure process were down 12% on the quarter and 14% on the year for the lowest levels since 2005. Lenders repossessed 123,000 properties in Q3, which is 1% less than Q2, but 66% more than Q3 2014. In total, foreclosures increased in 32 states from a year ago.
Activity may have increased as markets are suffering and lenders need to find ways to recoup lost money. Legal issues coming to an end definitely pushed the foreclosure rate higher, but the trend will likely continue into Q4 2015 and maybe into the beginning of Q1 2016.
Many markets, such as New Jersey, have exceptionally high foreclosure rates, up 27% on the year with 1 in 171 homes being foreclosed. This is in part due to high prices and exceptionally high property taxes.
Prices Will Normalize in Q1
The Q1 2016 home sales will normalize, with lower increases. Traditionally, there are fewer homes on the market in Q1, and a lot of homes that are leftover from the first three quarters of the year will likely have their prices slashed. Were seeing a lot of millennials move out of their hometowns and into different cities, causing housing booms in Dallas and Nashville.
Major increases will likely not be witnessed in Q1. The worlds economies will have a role to play in the housing market prices, but less than what we have seen in 2007 when prices started dropping.
What we do know is that the Federal Reserves potential interest rate hike has potential homebuyers fearful and eager to get into a new home immediately. The number of mortgage applications rose by 25% in early October, according to reports released on the 7th.
A major misconception for potential borrowers is that a Fed rate increase will cause mortgage prices to soar. This isnt the case just yet. An increase from 0% to 0.25% is the highest possible increase well witness initially.
Average mortgage rates are 3.9% currently, much lower than 10 years ago when rates were near 6%.
So, if youre planning on buying real estate, like a cheap house for renovating purposes, dont let the pending rate hike force you into a home too quickly. The difference of 0.25% will not cause you to pay too much more in terms of interest or monthly payments. The housing market is definitely recovering with new home sales up in August.
A looming question in Q4 and Q1 will remain: the global markets. If Chinas economy continues to slump and stock markets continue to remain volatile, it could cause prices to remain flat over the coming months. If the markets continue to worsen, we could face a declining market in 2016, but this is unlikely with action being taken to strengthen current market conditions.
One happy point out of all these predictions is that prices wont fall over Q4 to Q1 and certainly not in 2016. For new home buyers or investors, the real estate market has done exceptional over the past year, with an average 8.2% price increase and as high as a 20.4% increase in some markets.
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