The US housing market had a strong year in 2015. With continued low interest rates, my outlook for housing in 2016 is more positive than my view on stocks.
In addition, as the US economy continues its long recovery, leading to higher wages, the consumer’s situation will continue to improve. Combine this with lower oil prices and we will see consumers gain more purchasing power, which will drive demand for housing.
The bull market in housing since 2009 was mainly due to lower interest rates and the increased buying power of homeowners. The supply and demand imbalances between many cities also drove housing prices higher and will continue to do so in 2016.
Let me give you a snapshot of what I mean by imbalances in supply and demand.
In recent history, many large metropolitan areas had plenty of buyers in the market for housing, yet not enough homes to meet demand. This caused prices to move higher than they would have normally. This situation remains intact and will continue through 2016.
I am hopeful that the large price increases for homes in 2016 will entice more sellers into the marketplace, thus creating a more balanced marketplace where supply can better meet demand.
This imbalance is the number one factor driving prices upward in many cities. For the most part, evidence of this supply and demand balancing act will be most prevalent in the west in cities like San Francisco, Portland and San Diego.
Still, I believe that the price increases for homes in 2016 will move at a slower pace than we experienced in 2015.
While we may see a reduction in buying power due to higher interest rates, it is likely to be off-set by projected improvements in the job market and the broader economy.
To give you some perspective, in 2014 three-million jobs were added to the work marketplace. The prediction for 2015 was for two-million jobs however, as of January 1, the date of this newsletter the numbers for 2015 are not finalized. These jobs lead to move people being able to buy homes!