As 2015 nears a close, it is clear that the year was a soft victory for the area, with home prices increasing, but at a slower pace that previous years. The theme of 2016 will likely be that of cautious optimism as the market slowly creeps back to being a “normal” market; that is, one that is more equal between the buyer and the seller.
Here is a look at 2016 and how you can set your real estate resolutions for the year:
First, one clear trend is that housing inventory is changing. Traditionally, a “healthy” and balanced market nationwide consists of six months of housing inventory at any given time. The District has been classified for years as a seller’s market meaning that inventory is much less than this six-month indicator. During 2015, the D.C. market continued to lack supply, with prices increasing across every part of the city, albeit at a lower rate than 2013 and 2014. With a combination of interest rates rising and a cooling from post-recession markets, 2016 will likely show a continued trend of equality between buyers and sellers. This means that houses will likely go on market for the same number of days with less of a dramatic increase in price year over year.
Next, it is important to consider the changing landscape of interest rates. The year 2015 marked some of the lowest rates seen by buyers. To speed up economic recovery, the Federal Reserve deliberately did not increase interest rates until mid-December this year. On Dec. 16, the Fed raised interest rates by 0.25 percent. While this increase is not insurmountable, buyers who were hesitant to enter the market may be discouraged from making an appearance in 2016 (though, rates are still historically low). Next year, the market will be tested by these changes in rates, as many economic experts believe that we will see a significant increase in rates in 2016.
Finally, as we move into 2016, it is important to mention who will be purchasing a home and what types of property they will be looking for. For years, the millennial generation has been considered one of the pillars of purchasing power in real estate. While this population generally has lower savings and higher debts (from an increase in student debt prevalence), the millennial population is expected to rise in levels of homeownership now that this population begins to average around 30 years of age. Moreover, if the millennial population begins to enter the market and hold a higher share of its market, what types of property will be most attractive to this type of buyer? While every purchase is unique, many younger buyers may continue to drive prices in the downtown hotspots of D.C., continuing the cycle of pricy condos.
As 2016 rolls in, buyers and sellers alike should share in the optimism of being a part of such a strong real estate market like that of D.C. With some areas selling at the fastest in the U.S. for some of the highest prices, the District is truly a good place to buy and sell real estate. Moreover, any interested buyer or seller should make their plan now prior to the New Year in order to succeed at meeting their real estate goals for 2016.
If the theme of 2015 was continuing growth, then the theme of 2016 will be that of cautious optimism. I believe that the area will continue to see growth on a smaller scale over 2016, as a combination of mortgage rates and inventory will reduce the rapid growth seen over the past 3 years. The market is still very hot in D.C., and buyers and sellers alike should consider getting involved in the D.C. real estate market in 2016.