As an interested observer and active participant within the housing and mortgage servicing industries for more than three decades, I have opined on many industry-related subjects over the years, and each year also present my own predictions for the coming year. Why not, since predictions are like opinions and noses… most everyone has one?
There are numerous reports and other predictions out there pointing to positive improvement for the housing sector in 2016, or that indicate there are signs that we will continue to experience a housing recovery next year (which has actually only been true in specific markets, i.e., the Bay Area, Manhattan, Southern California, Denver and Salt Lake City to name a few). My opinion is that although 2015 looked a lot like 2014, next year will not mirror them in this vital sector.
Before I list my predictions, it is important to note that everyone’s predictions are relative to the economy in general, and the housing sector in particular is subject to unforeseen domestic and global disasters, man-made and otherwise.
Therefore, since 2016 is shaping up to be a potentially chaotic, unstable and unprecedented year of upheaval around the world, and is perhaps the most important national election year of my lifetime, it is quite possible that my predictions will not come to pass after all.
That being said, the following are some of my housing and mortgage industry-related predictions for 2016:
1. Interest rates
Interest rates will rise not only in December by at least one-quarter percentage point, but will continue to rise throughout the year for a total increase of more than 1%, due to actions of the Federal Reserve. Each uptick in mortgage rates will prevent many potential first-time buyers (and others) from qualifying for a loan. This will impact days on market of homes listed and will put pressure on listing prices to be reduced. If there are not enough first-time buyers entering the housing market there is less opportunity for existing homeowners to move up, which will also add days on market and impact pricing.
2. Luxury housing
A continued drop in luxury home prices, as reported in HousingWire, will influence a similar drop in home prices of nearly all price categories, which, combined with higher interest rates as stated above, will have a negative impact on the health of the housing sector.
3. Mortgage credit
Credit will remain tight in 2016, despite efforts by Fannie Mae and Freddie Mac to make more 3% down payment loans. This means that rental properties will continue to be in high demand causing ever increasing rents, which, like many mortgages today represent 40% - 50% of the income of renters and homeowners, which, with stagnant wages is unsustainable. This will negatively impact consumer confidence.
4. Consumer confidence
Consumer confidence in general will be negatively impacted because of the continued lackluster growth of our domestic economy. Until there is a dramatic change in the direction of this country with respect to deregulation of businesses (especially small businesses) and the creation of meaningful full-time jobs, the housing sector will not gain the strength it has had in the past.
5. Delinquent housing inventory
Inventories of delinquent and foreclosed loans have not disappeared and will only grow, further negatively impacting home prices in many markets, as reported by Ben Lane in HousingWire. In his article, Lane said, “Based on the number of past distressed loan sales and the amount of non-performing loan sales and re-performing loans that still exist on the books of Fannie, Freddie, HUD and commercial banks, even if the number of NPL and RPL sales stays at its current post-crisis high, there are still four years’ worth of potential NPL sales volume and six years worth of RPL sales volume left to sort out.”
And that is assuming, as Lane noted, that no more additional loans become delinquent, which is unlikely in the extreme.
With dramatic improvement in the quality of leadership in Washington and elsewhere, perhaps a more positive outlook is possible, but I can only call ‘em as I see ‘em.