If we could predict the future, buying and selling real estate would be a lot easier—but it’s the element of the unknown that keeps the market interesting. That being said, there are some things we know for certain. Mortgage rates will eventually rise, for example, while young buyers will grow older, and people will continue moving into cities for years to come.
Sounds simple, doesn’t it? But even though we can see the trends, we can’t always make sense of them. With that in mind, here’s a more in-depth look at some of the forces we expect to shape the real estate market in 2016—and beyond.
1. The effect of rising interest rates
All signs currently point to the United States Federal Reserve voting to raise short-term interest rates before the year is up. What does that mean for the real estate market? The honest answer is that no one knows for sure. While a raise may not have an immediate impact on mortgage rates, one thing is for certain—the low rates that buyers have been enjoying recently will rise, and it looks like 2016 may be the tipping point.
In fact, we’ve already seen rates inching upwards in anticipation of the Fed’s next move. Ultimately, rates will rise, which means that home buying will become more expensive. One possible result of these changes is a ripple effect: suddenly, buyers become more intrigued by lower-priced homes and areas, and premium, more expensive units begin to look overpriced.
2. Habits of the young
For the most part, real estate experts have noted that the dominant trend among millennials (or the generation born between 1980 and 2000, roughly speaking) is that they’re more cautious about entering the market than previous generations, and often prefer renting to buying.
However, in 2016 we may begin to see this trend finally shift, as millennials come of age, start families, and look to make long-term investments in a recovering economy. We’ve also begun to see some younger buyers “upsizing,” or purchasing larger properties, either as investments or to support growing families.
3. Urbanization still king
It seems that urbanization comes up every year when we look to forecast future market trends—but there’s a good reason for that. In fact, the percentage of people living in cities in the U.S. (and worldwide) continues to grow, and shows no signs of slowing. The effects of urbanization on the market are complex, but include rising prices in urban areas and increased attention to urban cores by developers.
None of this is new, but it’s important to understand that it’s a long-term trend that many expect to remain unchanged for decades. All that being said, it’s not always about the big-name urban centers—there are still many buyers seeking deals in smaller cities and less densely populated suburbs.