Housing is strong, and therefore I wanted to look for reasons why this is so in order to solidify my optimism. Although the market brings much uncertainty at times, looking at certain data points and demographic trends can lead even the biggest real estate skeptic to be optimistic about housing in 2016.
Here are Three Reasons I am Optimistic on Housing in 2016:
1. Demographics Are In Our Favor
You have heard about it for years now, that the millennials are coming into the housing market and you better be ready! Largely, that has been true and is really beginning to come into form.
First, let’s remind you of who this generation is (The Millennials). A millennial is generally defined as someone born between the early 1980s and the somewhere in the mid 1990s depending on which research report you cite. This is the generation that grew up with things like Nintendo, programmable calculators, and of course the internet. The reason so many housing industry insiders should pay attention to Millennials is largely due to their size and their age.
The milliennial generation is a huge generation in terms of size, with estimates placing the total at around 83.1 million millennials in the United States in 2015. Therefore, if you were to compare that to the generation before (Generation X) you would see that there are a ton of homebuyers coming of age and this is something we should all watch closely. If you look at the numbers, Generation X and Generation Y are roughly about the same in terms of size. Therefore, if Generation X was leading the housing market the past 20 years then it will be another sizable generation of the same size (or larger) coming on board here for the next wave. In addition, millennials are just now coming of age to where buying homes and starting families is a natural priority. With the average millennial in their late 20s, we are going to see tons of movement in the coming years and this looks very promising for housing.
Oh, and 89% of millennials who did buy a home used a real estate agent to assist in the process. This is MORE than the previous generations, which bodes well for the real estate industry as a whole.
2. Unemployment Numbers are Improving
In the latest figures available on unemployment from February 2016, 242,000 jobs were added to the economy in February which is a solid number historically. In addition, this lands the national unemployment rate at 4.9% which is the lowest level since May 2008. That is some good news!
Now yes, while some economists and researchers will tell you the U.S. statistic on employment does not necessarily always tell the complete story – you should pay attention if you are a pro in the housing industry. Regardless of the “truth telling” from the government, one thing we can say is that these types of statistics help drive consumer sentiment and their feelings of the economy as a whole. Therefore, if the housing consumer feels good about the economy and their job prospects they are more likely to make that move on a new home with more comfort and optimism.
3. Mortgage Rates are Still Historically Low
You can look at the chart above, and see exactly what I mean. In fact, when I speak to members of the millennial generation I try and explain to them all the time why THIS is the time to borrow money – it is basically at an all time low! With today’s average mortgage rate hovering around 3.87%, that means you can essentially borrow money for about the rate of inflation (give or take). That is an excellent deal!
In the early 1980s when mortgage rates spiked to over 15%, money was extremely expensive. Let’s just do some simply math to show the difference in a typical Principal and Interest payment when the rates are at 4% and when they are at double that which is 8%.
Borrowing $200,000 at 4%: Monthly P+I payment $955
Borrowing $200,000 at 8%: Monthly P+I payment $1468
As you can see, the purchasing power and ability to qualify dramatically improves when rates are low. Furthermore, there does not seem to be any immediate threats to mortgage financing or that rates will suddenly spike. In fact, to show the system’s commitment to keeping rates low the average mortgage rate actually went down briefly after the Federal Reserve raised it’s discount rate. Therefore, don’t believe everything you hear in the media as housing and mortgages are as affordable now as ever before. That is some good news, and certainly bodes well for housing nationwide!
This article is intended to point out the good news related to the housing sector, but certainly is not the whole story. Obviously real estate depends on a number of variables, this list is certainly not exhaustive. In addition, real estate is extremely local. What is happening in your home market may not necessarily reflect what is happening on the national stage. However, if you arm yourself with positive statistics and keep an eye on the good – you will generally have the more informed outlook and have the best opportunity to succeed. All statistics in this post were pulled from their appropriate sources.