Are We Headed for a Housing Slump in 2016?

The pain of the Great Recession is still fresh. It certainly challenged the maxim that real estate prices will always go up. But now, after several years of rising housing prices in the market, the question is: Are we in for another painful housing adjustment this year? It depends on whom you ask — and where you are.

First a big caveat. Real estate is very much a your-mileage-may-vary type of investment. Prices can go up in one part of the country while they go down in others. So, the housing markets in San Francisco and Flint, Michigan, for example, will look very different. Even within a particular region or city, price changes can vary from town to town and even from block to block. In short, you probably don’t want to make local real estate investment decisions based on predictions for how the market will perform nationwide.

Nonetheless, it is important to get a fix on the national picture. A number of market watchers say 2016 could see price increases slowing dramatically or even declining. Jack McCabe, a Florida-based real estate researcher, said on his website that we are already in the beginnings of a real-estate downturn.

“I expect to see them falling by the end of this year,” McCabe said. “We’re seeing tip of the iceberg indicators right now, and by the end of the year in many major U.S. markets, we’ll see price declines.”

He predicts the decline won’t be as severe as seen in 2008, and he expects it to be confined to higher-end units in major markets. Still, he advises caution.

“If you’re looking at buying, you’d be better off renting this year, waiting till later in the year, early next year, when you’ll see greater inventory, less demand, less competition and more favorable pricing,” McCabe said.

Housing analyst Marc Hanson agrees. He’s been arguing not only that the housing market is a bubble that’s about to pop, but also that the rental market is in the same situation. He looks at how much people make and reasons that there just aren’t enough people making enough money to sustain the housing and rental prices we’re seeing right now.

In October, Nobel Prize-winning economist Robert Shiller told Bloomberg that there could be a slowdown in price increases or retreat in housing prices this year. When he spoke he noted that in 2014 there had been 10 percent increases, which had dropped to a 5 percent increase in 2015.

“There might be a lowering (of the rate of increase) or possibly even declines in home prices in the next year or two,” he said in the interview last fall.

The cost of loans

Interest rates are likely to be another factor. As rates go up, buyers pay more to the bank, which means they’ll be able to afford less home. The Federal Reserve raised rates above zero for the first time since 2008, and many Fed watchers predict a series of gradual increases over the course of 2016. This prediction weighs in the arguments of those forecasting declines.

But there are a number of economists who don’t see a decrease in housing prices coming this year.

Svenja Gudell, chief economist at Zillow told Reuters in December that she’s an optimist about the market for 2016. She notes that millennials are just starting to enter the housing market, and they’ll continue to do so in greater and greater numbers.

She also points to a factor commonly cited by many who predict continued gains. There just isn’t much buildable land and new construction in the most desirable areas. People continue to move in, increasing demand, but the number of units available isn’t able to keep up, meaning the supply isn’t going up as fast as the demand. This, of course, tends to put upward pressure on prices.

Inman News, a source used by the real estate industry, interviewed six economists and noted last month that as a group they were “cautiously optimistic” about 2016. They each had very different takes on the possibilities: One predicted increased construction while another echoed the idea of a lack of enough new housing units – but on the whole, they expect housing to stay strong for the year.

With all that in mind, is it time to sell while the market is still hot? There are a number of factors to consider. First, where will you live if you do? Selling now, with the idea of renting somewhere else in town and then buying again if there’s a price drop is usually a bad idea. The prices would need to drop dramatically for you to be able to recoup the closing costs alone, to say nothing of the hassles involved.

But if you’ve been considering a move it may be worth some further investigation. Look at factors such as how much inventory there is, how long houses are staying on the market before they close and what prices have been doing for the past few months. You’ll want to do this in both your current and prospective markets to make an informed choice. Check out another of our articles for some more details.

What do you think the market will do this year? Will your region outperform or underperform the national averages? Let us know in the comments or on our Facebook page.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Read Next
10 Ways Retailers Trick You Into Spending More
10 Ways Retailers Trick You Into Spending More

Think you’re a savvy shopper? Find out how retailers persuade you to dig more deeply into your wallet.

7 Hobbies That Help You Live Longer
7 Hobbies That Help You Live Longer

Research shows some hobbies can add years — or even decades — to your life.

6 Investing Tools That Help You Diversify
6 Investing Tools That Help You Diversify

Here’s how you can lend to startup businesses, fund social causes or get in on investments once available only to the very rich.

9 Affordable Ways to Make Your Home Look Expensive
9 Affordable Ways to Make Your Home Look Expensive

These products from Amazon add elegance to your home without the expense.

7 Secret Perks of Individual Retirement Accounts
7 Secret Perks of Individual Retirement Accounts

IRAs come with bells and whistles that many other accounts lack — including some perks you may not know exist.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
7 Kirkland Signature Items to Avoid at Costco
7 Kirkland Signature Items to Avoid at Costco

Even if it seems you save a bundle buying Costco’s Kirkland Signature brand products, they may not be the bargain they appear to be.

If You Find This Thrift Shopping, Buy It
If You Find This Thrift Shopping, Buy It

Whether you resell it for a big profit or add it to your own wardrobe, this type of clothing is a hidden steal.

3 Ways to Get Microsoft Office for Free
3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

9 Things You’ll Never See at Costco Again
9 Things You’ll Never See at Costco Again

The warehouse store offers an enormous selection, but these products aren’t coming back.

This Surprise Factor Can Raise Your Risk of Dementia
This Surprise Factor Can Raise Your Risk of Dementia

Nearly half of U.S. residents may face this threat.

Organize Your Home With These 10 Thrift Store Finds
Organize Your Home With These 10 Thrift Store Finds

Resolve to be clutter-free in 2021 with these secondhand purchases.

Am I Eligible for My Mother’s Social Security Benefit?
Am I Eligible for My Mother’s Social Security Benefit?

Can an adult daughter tap into her late mother’s benefit?

11 Laws You Could Be Breaking Without Knowing It
11 Laws You Could Be Breaking Without Knowing It

Seriously? Fibbing about the weather is a crime? This and other little-known legal traps await the unwary.

Is This Treatable Condition Causing Your High Blood Pressure?
Is This Treatable Condition Causing Your High Blood Pressure?

Researchers say too many doctors are overlooking this potential source of hypertension.

13 Things Seniors Can Get for Free — or Almost Free
13 Things Seniors Can Get for Free — or Almost Free

There are many ways to get cheap or free services and goods after reaching a certain age.

These Are the 3 Best Used Cars You Can Buy
These Are the 3 Best Used Cars You Can Buy

These vehicles boast reliability, safety and long-lasting value.

Longer Trips to These Stores May Raise COVID-19 Risk
Longer Trips to These Stores May Raise COVID-19 Risk

An airborne-disease expert recommends leaving this type of store within a half-hour.

Taking a Multivitamin? Here’s Why You Should Reconsider
Taking a Multivitamin? Here’s Why You Should Reconsider

A new study has bad news for the millions of Americans who spend money on multivitamins.

21 Items to Cut From Your Budget That You Won’t Even Miss
21 Items to Cut From Your Budget That You Won’t Even Miss

Start off the new year by implementing these small-but-smart savings strategies. They’ll soon add up.

Internet Providers Can’t Charge You for This Anymore
Internet Providers Can’t Charge You for This Anymore

Starting this month, your ISP no longer can bill you for this fee.

15 Painless Ways You Can Cut Costs in 2021
15 Painless Ways You Can Cut Costs in 2021

Follow these tips to save, so you’ll have money for things that really matter.

9 Small Expenses That Are Bleeding Your Budget Dry
9 Small Expenses That Are Bleeding Your Budget Dry

Keep more of future paychecks by eliminating these budget-busting unnecessary expenses.

Prepare to Pay More for These 31 Drugs in 2021
Prepare to Pay More for These 31 Drugs in 2021

More than 700 prescription medications have seen price hikes so far this year. Here’s a look at the worst.

20 Amazon Purchases We Loved in 2020
20 Amazon Purchases We Loved in 2020

These practical products made everyday life a little easier last year — and will do so in the new year, too.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.