2016 Home Price Forecast

How much longer can housing prices continue to rise?

Not much longer according to analysts at Bank of America Merrill Lynch. They expect housing prices to peak in 2016, maybe rising 3% annually through 2017 and then basically remain flat through 2022. Read more of their analysis here.

How will a rise in interest rates affect housing prices?

Most analysts expect the Federal Reserve to increase interest rates in the fall of 2015, in conjunction with their September 16 – 17 committee meeting. If that occurs, we could see higher mortgage borrowing costs toward the end of this year and into 2016.

Freddie Mac is the government-owned corporation that buys and sells mortgage securities. According to Freddie Mac’s 2016 mortgage forecast, rates could climb above 4% later this year, and rise steadily toward 5% in 2016. They expect the average rate for a 30-year fixed mortgage to be somewhere around 5.2% by the end of 2016.


Should 30-year mortgage rates go up 1 percent in the next year and housing prices rise 5 percent in that time, then a monthly mortgage payment would climb by a whopping 18 percent.

According to the Chief Economist’s office at Freddie Mac:

“Rising rates and continued house price appreciation will squeeze affordability even in today’s low cost markets. Housing looks strong enough to weather moderately rising rates, but we need real income growth to support home buyer demand.”

However, the National Home Builders Association is more optimistic.

"This should be a good year for housing, buoyed by sustained job growth, rising consumer confidence that is back to pre-recession levels and a gradual uptick in household formations," said NAHB Chief Economist David Crowe. "We expect 2016 to be even better, due to a significant amount of pent-up demand and an economy that will be entering a period of reasonable strength and consistency."

The Urban Land Institute Center for Capital Markets and Real Estate agrees that the three-year forecast through 2017 is one of solid growth. Their forecast is based on a survey of 43 top real estate analysts and economists representing 32 real estate investment, advisory and research organizations.

But does the short-term forecast really matter? Not according to Leonard Baron, "America's Real Estate Professor" as quoted by the Zillow blog:

"Due to ...transaction costs and low appreciation in value, it’s highly unlikely that a person will earn much wealth on real estate if they don’t own their property for at least seven years. That timeframe is a minimum, however. Most people who earn net profit/monies from their properties have owned them for 15 to 30 years or more."

Pay attention to what is happening in the economy and do your own due diligence to determine the real estate strategy that best fits your market and your investment goals.

Happy Investing!