Submitted to NerdWallet.com
This is the season for resolutions, but it isn't all about promises to eat better or hit the gym.
For a lot of people it's time to get those finances in order and finally set out on the road to homeownership.
That isn't just conjecture from someone who's been a licensed real estate agent for over 40 years, either. It's right there in the numbers.
Recent survey data found that 94 percent of renters under the age of 34 want to buy a home in the future.
Chances are you're one of them. So, exactly what's coming down the pike for potential homebuyers in 2016?
Set the cruise control
Potential homebuyers have a mostly smooth road they can depend on, and that's likely to continue into 2016, but there are obstacles to watch out for. Buckle up and we'll go through a few of the big ones:
- Low interest rates:
Yes, the Federal Reserve just raised interest rates, but mortgage rates don't move in lock-step with the rates the Fed increased and still remain historically low. Expect a gradual increase in mortgage rates as the economy improves and the Fed continues rate increases. The result: Costs for borrowing in 2016 will likely rise gradually.
- Low down payment programs:
Credit is still hard to come by, but conventional mortgages backed by government-sponsored enterprises are available for down payments as low as 3 percent. That's good news for borrowers, as many creditworthy borrowers still struggle to come up with a down payment, especially in high-cost markets.
- Continued job creation:
A stronger job market means more people with steady income. That translates into more opportunities for homeownership and better access to mortgage credit.
- Lower mortgage insurance premiums for loans backed by the Federal Housing Administration:
FHA announced a 50-basis point decrease for their Mortgage Insurance Premium in early 2015.As a result, more buyers were given access to this important financing option. We expect the positive effects will continue in 2016.
So, that's all good news, right?
Not so fast. Potential homebuyers are in a strong position to do well, but don't take your eyes off the road.
Hazards reported ahead!
It probably isn't news to anyone that affordability is an ongoing challenge in the market. Or in sticking with our metaphor, it's the big tire in the middle of the road.
If you're buying a home in 2016, odds are good that you'll have to navigate around at least one of these affordability issues:
- Student debt:
If you have student loans, you know that shelling out hundreds of dollars every month can make it hard to save for a down payment. Student debt also adds to a potential buyer's debt-to-income ratio, which reduces the amount of additional debt a mortgage lender can let you take on. And if you have an adjustable-rate mortgage, you may see that ticking up this year.
- Tight supply:
All the good news about falling unemployment rates and a strengthening economy has brought people back into the housing market, driving demand. That's great, but housing supply hasn't kept up, and significantly more construction is required to ease the developing housing shortage. Once the spring homebuying season returns this year, the pressure will be on to move quickly in many markets.
- Higher rents:
Rents have risen steadily as housing availability has fallen. And sure, that's a good reason to buy a home, lock in your monthly payment, and start building equity. But for many potential homebuyers, high rents are exactly the reason that saving for a down payment is so hard.
- Rising home prices:
Current homeowners should be glad that in many markets, home values continue to rise. As current homeowners build equity, the incentive to "trade up" for a bigger home will increase, creating openings for potential new homeowners. However, as prices rise, so do the costs. Even if price growth continues at a moderate pace in 2016, this will pose an ongoing challenge for buyers.
Consider riding shotgun
Worried? Don't be. You don't have to do all of the driving. In fact, I'd be remiss if I didn't point out that across the country there are REALTORS®, members of the National Association of REALTORS®, who would be happy to help guide you to your new home.
But spending some time in the passenger seat and letting an expert navigate the backroads for you is even better than your onboard GPS.
A REALTOR® can help you pick a lender, find a home that meets your needs, and tackle that intimidating pile of paperwork that shows up in your inbox. To find one, just visit realtor.com®, where property listings and expert advice are just a click away.
After all, homebuyers have a lot to consider. And while it's too early to say exactly what's down the road in 2016, it's never too early to start planning your route.
So if you're resolved to join the millions of homebuyers out there this year…get ready, put the top down, and grab those aviators. We're on this road to homeownership together, and I like where we're headed.