None of us have a crystal ball that can reveal what the future holds. This is especially evident in the housing market. It’s hard now to imagine a time when most people thought the value of real estate would always hold steady and always increase. But we all know what happened when the bubble burst.
Given what we do know, what are some of the industry experts and economists looking at now to help predict where the housing market will go next? For most of us, our homes are our biggest investment and hold a lot of financial stake. So it’s smart to keep a watchful eye on its value even if we are not planning a move.
To help stay informed, here are a few key indicators that we can apply to your home or real estate investment:
Begin by consulting a Real Estate Professional to help understand your home’s current valueFirst of all, it is important to start with an objective analysis of your home’s current value. A Real Estate Professional is a great resource for this and can conduct a market analysis based on the sale and listing price of other comparable properties. It’s also helpful to know that there are different types of value assigned to your home. There is the market value, which is generally what is relevant in a real estate transaction or appraisal. There is also the assessed value, which is the worth placed on the property for tax purposes. Another type of value is investment value, which relates to the value of a property as an investment vs. a residence.
Once you have your starting point, you can then factor in the events that happen in the marketplace that typically drive value up or down. These are the circumstances you can focus on to form your hypothesis of what your home’s value might be in the next 5 years. It helps to compare various estimated reports for housing market trends.
Comparable estimated reports and housing market trends1. Construction Spending. The US Census Bureau issues a monthly report on how much is being spent on construction. You can compare month over month or year over year to see if spending is increasing sharply, likely an indication of a lift for real estate value.
2. Home Sales. A report provided by the National Association of Realtors® on single-family home sales every month is also a good indicator. This report is based on actual home sale closings and also provides input of prices and regional sales. If sales are up, likely your value will be as well.
3. State-Level Home Sales Reports. If you live in a larger market, such as California, Illinois or Texas, you might be able to find a report on the sales activity in your state to get an even more precise indicator.
4. New-Home Sales. There is a government report on new residential sales based upon sales contracts signed. The report breaks it down by region and provides price points and median sales prices.
5. Pending sales. The National Association of Realtors also produces a pending home sales index monthly report. It gives an idea of how many transactions are currently in progress and compares it to prior months.
6. NAHB’s Housing Market Index. The National Association of Home Builders® produces a monthly NAHB/Wells Fargo Housing Market Index that looks at the level of confidence builders have in the single-family housing market. This is important because the market is always influenced so strongly by perception.
7. Price Indices. These provide a hint about the level of home prices nationwide, buyer interest and housing market optimism based on national trends. Again, perceptions often define reality. Perceptions can change based on variables like political factors, an election year, or job confidence.But there are also more statistical factors, such as the S&P/Case Shiller Home Price Index and the Federal Housing Finance Agency’s House Price Index that uses input from Fannie Mae and Freddie Mac to track prices. Another source, CoreLogic, Inc., has a report that also takes into account distressed sales, such as foreclosures.
If that all seems a bit overwhelming, you don’t have to take the D.I.Y. approach. You can read what the experts are predicting for 2016. After all, they use some of the very same indicators. Here are some highlights of what Real Estate Economists and experts are saying about home values in 2016.*(NOTE: These are only educated guesses, not claims. See sources below. Again, no one has a crystal ball.):
Highlights from the experts for 2016:1. The housing market will shift down from a surge fueled by investors and cash buyers to a more stable market.
2. Rise in mortgage rates are predicted to have a minimal impact but will likely effect first-time buyers the most.
3. Sales will rise … a little bit. The National Association of Realtors is predicting an increase of about 3 percent. But slow, steady and sustainable is best.
4. Home prices are predicted to rise by about 4-5 percent according to CoreLogic, which is less than 2015 levels, but enough to make sellers happy.
At the end of the day, though, this all varies a lot by market. The housing market and home values have come a long way, but not consistently in all areas. It is probably best to be cautiously optimistic.
Another great way to protect your biggest investment is with an American Home Shield® Home Warranty Plan. All indicators show that household breakdowns WILL happen eventually. An AHS® Home Warranty Plan is a smart way to help manage your household budget. For more information about our home warranties, visit ahs.com.
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