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Monday, January 25, 2016

Cautious Optimism for Real Estate in 2016

Looking ahead to 2016, the National Association of REALTORS® (NAR) released their forecast, which can be described as “cautiously optimistic.” Chief Economist Lawrence Yun noted that the year hasn’t started out quite as strong as was expected because of a contraction in the manufacturing sector. This means that other sectors like real estate must perform well to continue economic growth.

Locally there was good news on this front… a recently released report from the State of Idaho’s Joint Legislative Economic Outlook and Revenue Assessment Committee shows the impact that real estate has had on Idaho’s Gross State Product (GSP) between 2004 and 2014. It notes that real estate was the fastest growing segment—up $3.6 billion over the 10-year period—and surpassed manufacturing to become the largest private segment in Idaho’s economy. Idaho businesses operating in the “Real Estate, Rental, and Leasing” segment generated $8.5 billion, which was 13.5% of GSP. Based on these figures, and the Total Dollar Volume noted earlier in this report, we can estimate that residential real estate in Ada County accounted for 22.4% of GSP in 2014.

Back to national trends, despite the slower economic growth that started 2016, NAR expects home sales to grow by 1-3%. Additionally, they expect prices to grow around 3-5% due to new construction housing shortages in many markets. But as noted earlier, here in Ada County, we have a balanced new construction market and need inventory growth among existing homes.

CoreLogic reported that Idaho was fourth in the nation for price appreciation last year—up 8.5% compared to 2014—based on activity through November 2015. The top five states were as follows: Colorado with 10.4% price appreciation year-over-year, followed by Washington at 10.2%, Oregon at 9.0%, Idaho at 8.5%, and Florida at 7.9%. CoreLogic estimates price appreciation in 2016 of about 3.9% for the state overall, and ACAR will be watching how that trend plays out in and around the Boise region throughout the year.

As noted, mortgage rates are expected to go up throughout the year, and likely into 2017. Even though they’ll still be historically low, NAR notes that the rule of thumb is that a 1% rise in mortgage rates translates to 10% reduction in purchasing power. This is another reason the pace of price appreciation will slow down compared to last year.

Finally, NAR will be watching job numbers throughout 2016, as they are a leading indicator of housing demand. Last year, NAR ranked Idaho as #2 in the country for job growth, up 3.2% year-over-year. ACAR will continue to support groups like the Boise Valley Economic Partnership and others, who work to attract companies and bring jobs to the state, and especially to the Boise region.

Last year was a great year and my 2016 has already started very strong. Give me a call or send me an email to assist you in buying or selling this year. Thanks Roger

 

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