What’s Ahead for Real Estate in 2016?

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I will tell you how I think 2016 will shape up but I want to start with the disclaimer that since this is a Presidential election year – anything can happen.

In our local market we have now had 3 consecutive years of strong sales reaching or surpassing previous peaks and at the same time we have had 4 consecutive years of low inventory levels with 2013 and 2015 being at seriously low levels.

These 2 factors occurring at the same time have then lead to significant price increases, double digit price increases, which have only in the past few months started to slow a little more noticeably. Prices tend to rise more from March thru July or August and then slowly drift down some from August/September until the following March. But overall, prices have increased from their bottom in 2012-2013 to near the levels of 2006 when they had hit their last peaks.

A big reason for the price increases is that the inventory levels continue to stay low while demand and sales continue to increase in strength. Once inventory gets back into a more normal range we should see a flattening of prices or at least only a very slow increase. However, we probably won’t see the inventory get to the needed levels for at least another year or two. Part of the reason for that is new home construction would be needed in addition to current owners selling their current homes and the new construction levels are just starting to get to the levels needed to meet the demand. The other reason is that in Pinellas County there is very little land available to build much in the way of new construction. There is some land here and there where maybe 10-12 homes or 15-20 townhouses can be built – but those are very small developments. Larger communities of newly constructed homes are not going to be going up in Pinellas County – they will go up in areas like Riverview, Land O Lakes, Lutz and other outlying area in Pasco and Hillsborough counties.

This means that for Pinellas County and the beach areas we will continue to have a tight inventory situation for a while and buyers will need to be prepared for how to succeed in this type of market. To succeed, buyers will need a real estate agent and lender who are really at the top of their game and know what they are doing even better than anyone else out there.

Sellers will also need to be realistic about selling and pricing. The tendency is to think that in a seller’s market you can pretty much get whatever you want – in a small number of cases that is true but it is not true in most situations. Prices will continue to rise as long as inventory stays low and buyer demand is strong as long as we don’t experience any significant economic situations in the state or country. However, prices cannot continue to rise at the pace they have been and sellers need to know this. Prices were below market value at the bottom and have had higher than normal increases to catch back up to where they should be – this is what we saw in 2013 and in the first half or so of 2014. Now that prices are back near where they should be we will start seeing a situation where they won’t increase at as fast a pace because prices are starting to go above the affordability level for the average buyer. This doesn’t mean that sales will dry up or that buyers will disappear – it just means that buyers will be less likely to fight over a property and get into bidding wars, or even pay very close to the asking price if that price is above market value. So sellers will need to be prepared for the market starting to move more toward realistic pricing in the next year.

One factor that can change things either way is the increase in interest rates. In December the Federal Reserve had its first interest rate hike in a long time and it sounds like they will be increasing interest rates by about 1/4% every 6 months from this point out. The December hike did not seem to have too much impact on the market but that might be because the number of buyers who realized they shouldn’t wait any longer was higher than the number of buyers who got scared off by the rate hike. Chances are the overall impact will not be significant either way but that will probably mean that the level of sales we have been seeing won’t be going down – so that means we will continue to have inventory issues and will continue to see prices going up.

That is what I see for 2016 and as a buyer or as a seller you should know that these factors will have an effect on your efforts to buy or sell. If you aren’t prepared for this and/or don’t have an agent that knows what to do in this unusual situation then you will have a more difficult time than you need to. Make sure that you don’t lose out to other buyers or have your home languish on the market when it should be selling.

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