Here it is folks! Your real estate road map for 2016 for coastal Georgia and the the southern coast of South Carolina:
Before we get to some predictions, lets take a look at the real estate industry and factors that that will influence the coming year.
It’s an election year. In most election years, real estate sales slow down a little. People get distracted with the election process and some sit on the sidelines until the election is over. In Savannah, GA, the lean months are October through March, and in Hilton Head, SC, monthly sales are stable all year round. How the election times with local market cycles will determine its effect, and how buyers and sellers personally perceives the results come into play as well.
The Fed is raising interest rates. Although short term rates do not have an immediate impact on long term mortgage rates, these short term rate increases will eventually affect long term rates. Paradoxically, the most recent Fed rate increase actually caused mortgage rates to go DOWN – but that will be short-lived for sure. Expect long term rates to rise over the year. They could get as high as 5%. (if you have been in the business a while, that statement alone is kinda funny!) Remember, interest rates are a matter of perception – if the public perceives them to be high, then they are high no matter what history says.
Flood Insurance…still! Flood insurance remains a thorn in the side of coastal real estate markets. Homes in flood prone areas have additional insurance needs for flood risks on top of general hazard insurance, and the National Flood Insurance Program (NFIP) has been in a state of flux for two years now. Congress made attempts to stabilize the program in 2014, but uncertainty remains. However, one certainty does exist – flood insurance rates will rise.
Borrowing / Lending money is more complex. October 3rd, TRID was implemented. What does TRID stand for??? “Truth in Lending Act, Real Estate Settlement Procedures Act, Integrated Disclosure”. Only in government will you get an acronym of acronyms! The Dodd / Frank Act of 2010 has culminated (at least for consumer lending) with TRID implementation. This is the “age of the consumer” and TRID is designed to make the lending process easier and protect the consumer more effectively. In short, it is more complex than before, it favors larger lending institutions, banks fear regulators so much they will say “no” to loans they would have previously approved, mandated cooling off periods create havoc on closing and possession timelines, and…and…and. The industry will get better at following the new rules and closings will become more streamlined, but it will take a while…
Healthcare I know… “How does healthcare effect real estate?”. A personal perspective will help you understand. First – 70% of our population gets healthcare from their employer (44.5%) or from a government plan (25.6%) (Gallup-2015). 11.3% are considered uninsured, while 16% get their insurance by purchasing it on the open market. The ACA, aka Obamacare, does not effect large employers until 2016. That means only 16% of the population have been impacted thus far, with a whopping 44.5% getting ready to go into sticker shock. This will reduce the available money to purchase homes for sure.
Healthcare Sticker Shock! 2 years ago, my family of 6 spent $10,200 in PRE-tax dollars on premiums, with a $1,000 deductible and a family deductible of $2,500. So, our total healthcare insurance exposure was $12,700 per year plus some change for office visits and prescriptions. Compare that with my family’s costs after the “Affordable Care Act”… We now spend $19,200 in AFTER tax dollars on premiums, with $2,500 deductibles and a family deductible of $9,000. That makes our annual health care exposure $28,200 plus more change for office visits and prescriptions. Our health care costs have gone up 125% in just 2 years. 125%!!!! 44.5% of the population is getting ready to experience these staggering costs. At least my wife and I, neither of which have a uterus, have prenatal care and obstetrics coverage!
Nontraditional Workers Unite! Entrepreneurial spirit is on the rise. The 30 year factory position with a pension is like a purple unicorn. My children see it. Their peers see it. They now feel the pressure of making their own way. This is a great thing!
College Graduates saddled with enormous debt. College is outrageously expensive. I have 2 children in college. I am experiencing these costs. 18 year old kids are suckered into huge student loan debt while pursuing their degrees in Psychology, Epistemology of the Spoken Word, or Gender Studies, only to find at the end of the rainbow no one is hiring in their areas of expertise! So, they get a job flipping burgers to pay their $750/month Sallie Mae bill, move back in with Mom and Dad, and don’t contemplate purchasing a home for 10-15 years. Couple that with a feeble economy and first time home buyers are facing some headwinds.
And now for some predictions…
Single Family Residential: We’ve come a long way from the “Great Abyss” of 2008-2012. Monthly number of homes sold just surpassed those of 2007 in the Savannah MSA. Although this is not adjusted for population growth, it is a sign we have come a long way and there is still room to grow. Homes sold will continue to grow at a modest 3% year over year pace.
Mortgage Rates: Mortgage rates remain at historically low levels. They will remain relatively low, and should not go above 5%. How the public perceives this is the bigger question. If the public thinks they are high, then they are high and they will keep their hands in their pockets. If the Fed raises rates again, this may cause many to get off the fence while the “gettin is good” and we will see a short lived bump in home sales.
Regulatory Environment: Due to the complexities of the new settlement procedures, the Consumer Finance Protection Bureau (CFPB.gov) will begin to relax some of their rules. They may go as far as returning the responsibility of the the Closing Disclosure formulation, now uncomfortably in the hands of the Lenders, back to the attorneys. This will relieve pressure on closing and possession timelines.
Average Home Price: The median sales price will continue to rise nationally. There are some hot spots like Miami, Las Vegas, and Los Angeles. But for coastal GA and SC, expect a modest rise in median sales prices, no more than 3% overall.
Short Sales and Foreclosures: With the correction of the housing market well underway, short sales and foreclosures sales are already in a sharp decline. I expect that trend to continue. Banks are being scrutinized by regulators and short sales are becoming even more difficult. Additionally, with rising prices, banks will be able to wait out the market and reduce the amounts that must be forgiven when sellers must sell short. Institutional buyers in large metropolitan areas like Atlanta who purchased huge amounts of foreclosures in blocks during the Great Abyss will begin to unload their inventory.
Overall impression for 2016: Relatively flat growth with modest gains, a few bumps along the way, but a pretty good year on the horizon!
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