A Look Ahead: Will 2016 Be a Good Time to Buy a House?

It’s only summer, but believe it or not, we are already getting questions from people planning to buy a home in 2016. Their questions vary, but most are variations on a theme: Is 2016 a good time to buy a house?

This is the million-dollar question (sometimes literally) for people who are planning to enter the housing market next year. It’s also a hard question to answer, because housing conditions vary from one city to the next. Not to mention the individual differences from one buyer to the next.

So let’s tackle this question from a different angle. Here’s how you can decide for yourself if 2016 is a good time to buy a home.

Housing Conditions Vary Widely at the Local Level

As a home buyer, the first thing you need to realize is that housing trends and conditions vary widely from one local market to the next. So take with a grain of salt all of the mainstream news stories that talk about “the” housing market. Those stories may or may not apply to you. As a home buyer, you must research these matters at the local level.

Here’s an example. According to the real estate information service Zillow, home prices in Atlanta, Georgia rose by more than 11% over the last year. The company expects prices in this market to rise by another 5.2% between now and summer 2016. By way of contrast, home prices in Orange County, California declined by -1.5% over the last year, and Zillow expects much of the same over the next 12 months.

Two different real estate markets — two very different trends. This underscores the need for localized research. Home buyers need to know what’s going on in their own backyards, so to speak.

As a general rule, markets with fast-rising prices tend to create a stronger sense of urgency among buyers, while slow-rising or “flat” markets give buyers more time to ponder their purchase.

Home Prices Leveling Off in 2016?

Despite the vast differences from one local housing market to the next, there is a general trend that applies to much of the country. Economists and analysts have predicted more moderate price gains in 2016 compared to 2015 — or no gains at all, in some markets. In many cities across America, house values appear to be hitting a plateau of sorts.

Many housing experts — including Mark Zandi from Moody’s Analytics, and Lawrence Yun from the National Association of Realtors — expect home prices to continue rising over the next year, but at a slower pace than in the past. Nationally, prices rose rose 8% in 2012, 11% in 2013, and 5% in 2014 (according to Barron’s), but analysts are predicting smaller gains of 2% – 4% through 2016.

Understanding price movement at the local level will help you determine if 2016 is a good time to buy a house. But prices aren’t the only consideration. Home buyers should also consider their employment status, the likelihood of continued employment, and the state of the local job market. So let’s talk about that next.

Employment Conditions Have Improved

The job market is another bright spot for those planning to purchase a home next year. According to the Bureau of Labor Statistics, the U.S. unemployment rate dropped to 5.3% in June 2015. That’s a considerable improvement from the 10% jobless rate we saw in 2010, following the recession. In short, there are more jobs to go around these days, and this puts more people in a position to buy a home.

Of course, job markets vary from one city to the next, just like home prices do. If you’re trying to decide if 2016 is a good time to buy a house, you need to factor in the local job market.

Sure, you’re employed now. But what is the likelihood that you will remain employed? In other words, how employable are you? If you lost your job next month, how soon do you think it would be before you found another? These are the kinds of tough questions potential home buyers need to ask, before taking the plunge.

Mortgage Rates Expected to Rise

Mortgage rates also play a big role in the “should I buy” equation. They affect housing affordability and the long-term cost of a borrower’s home loan. The good news here is that rates have been historically low, and relatively stable, since the beginning of 2015. The average rate for a 30-year home loan has been hovering around 4% for months now.

But we could see an increase in mortgage rates through the end of 2015, and going into 2016. The Federal Reserve is expected to raise the federal funds rate later this year or early in 2016. This could have an indirect influence on long-term rates, such as those applied to mortgage loans. In short, there’s a pretty good chance loan rates will be higher in 2016 than they are right now.

Currently, the average rate for a 30-year fixed home loan is 3.98%. Freddie Mac (the government-sponsored buyer/seller of mortgage securities) expects the 30-year rate average to rise slightly by the end of 2015, climbing to around 4.3%. They expect it to climb above 5% by the end of 2016.

Home buyers who are thinking about buying a home in 2016 must consider the very real threat of rising interest rates. If they do in fact rise, as many have predicted, it will reduce affordability and increase borrowing costs.

Bottom Line: Is 2016 a Good Time to Buy?

Is 2016 a good time to buy a house? If you plan to stay put for a while, and you feel pretty good about your employment and income situation, 2016 might be a great time to buy a home.

Study your local real estate market to see what home prices are doing, and what they are expected to do over the next year or so. This will help you time your purchase to avoid paying more for a house. If you live in an area where house values are expected to rise steadily, you might be better off moving sooner rather than later.

There’s also a chance we could see higher mortgage rates down the road. These are all important points to consider when entering the market.

Disclaimers: This story contains data from third-party providers that are deemed reliable but not guaranteed. It also contains forward-looking statements (forecasts, predictions and expectations) regarding the housing market and economy. Such statements are the sole opinions of those who provided them and may not reflect the views of the publisher. We make no claims or assertions about future housing conditions such as mortgage rates and home prices.