What’s Ahead for 2016: The Good, the Bad and the Problem of Low Inventory

What’s Ahead for 2016: The Good, the Bad and the Problem of Low Inventory

With 2015 in the rearview, it’s time to take a look at what’s going right, what’s causing problems, and what the market finished up looking like over the last year. Here’s our year in review for real estate in the Bold City, plus a look at what’s ahead:

What We’re Excited About

2015 started off pretty modestly, but really accelerated into a strong market by the end of the summer and through the rest of the year. Residential real estate experienced its best year in 2015 since the Great Recession ended in 2009.

Interest rates remained low despite a slight bump up from the Federal Reserve. We’ll be keeping an eye out for future announcements from the Fed in 2016 as they plan to rollout further small increases as the economy continues to improve.

The new-home market continued to grow as builders tried to keep up with demand from buyers faced with low resale inventory. This push from both national and local builders left Jacksonville home buyers with a variety of homes to choose from across Jacksonville. For a look at new neighborhoods we’re watching in 2016, check out our latest article here.

What We’re Keeping an Eye On

The national homeownership percentage is the lowest it’s been since 1993. Crazy, right? The recession was no joke, and many potential homebuyers are still wary of purchasing real estate. We’re anticipating seeing the number of people choosing to buy steadily rise as rental rates continue to edge up around the city.

Low inventory continued to be a problem throughout 2015, and looks to continue into the beginning of 2016.

So, what’s ahead for 2016?

Real estate is all about cycles. The housing market has four main stages it cycles through: downturn, the bottom, recovery, and back to the top. So, which of these stages are we finding ourselves in for 2016?

Let’s take a look at some indicators. Home prices are seeing record highs; the median home price was $170,000 for 2015, this is 6.9 percent above 2014. This is great for homeowners building back equity in their homes, but this rate of growth is simply not sustainable when it comes to affordability, and the market is going to have to adjust. Look for stabilizing home prices in the months ahead.

It’s also important to look at the current months of supply of homes on the market. We saw a nearly 20 percent drop in inventory around Jacksonville in 2015, despite the demand from buyers. As of now, the current months supply is under 4 months. Inventory is a huge topic both locally and nationally, and it will continue to dominate the conversation as we progress through 2016.

Mortgage rates are simply the price of borrowing money, and we are seeing very affordable patterns for this compared with what we’ve seen historically. Interest rates held below 4 percent for most of 2015, and they have only been going lower this first part of 2016. With the way the market has been shaping up the last two quarters, it looks like we will continue to see low interest rates until GDP rises and the markets become more stable.

Something to keep in mind when it comes to interest rates; we can roughly estimate that for every 1 percent that mortgage interest rates increase (so from 3.5 percent to 4.5 percent, for example), consumers can expect about a 10 percent increase in the cost of the house per month. The Federal Reserve would like to see interest rates at 4.5 percent by the end of 2016, but as we said, the market will dictate if that will happen or not.
All things considered, we are in pretty good shape, but look for a shifting market in the months ahead.