- Zillow has issued its 2016 housing market predictions, all of which are affected by "deteriorating housing affordability," particularly for young renters and first-time homebuyers.
- Zillow predicted millennials will continue to delay homeownership — and other major life decisions — which will drive the median age of first-time buyers to new highs. Rents will also reach new highs, Zillow said, and will result in the least affordable rents in history.
- Zillow also anticipates that increasing home values will continue to grow faster than income, particularly for low-income earners, resulting in the bottom third of working Americans being completely priced out of homeownership. According to the economic and housing experts surveyed by Zillow, the median expectation for increases in home value is 3.5%
Zillow’s predictions are essentially a continuation of trends reported all year. Young, first-time homebuyers have been increasingly saddled with soaring rents and rising home prices, making it difficult for the demographic to save for a down payment. Combined with student debt and the growing trend of young people living at home longer, those factors have resulted in first time home-buyers representing approximately one-third of the housing market, the lowest share in 30 years.
"Rents will continue to increase at a brisk rate in 2016, but many potential first-time buyers are living in hot markets where buying a home is really expensive," Zillow Chief Economist Svenja Gudell said.
One new outgrowth of the decreasing housing affordability, Zillow noted, is that rising prices will force first-time homebuyers into suburbs developed to emulate urban living, which has traditionally drawn millennials into cities.
"In 2016, we'll start to see more people in hot coastal markets forced to move farther from the core of the city to find housing," Gudell said. "When they get there, they'll be looking for amenity-rich suburbs — mini-cities, with walkable cores and an urban feel."
Gudell said rising mortgage interest rates will also play a part in reversing the mortgage affordability of the last few years.
"All of this will happen against a backdrop of slowly increasing interest rates. That will make some homeowners think twice about selling, and many of them will decide to remodel their current homes instead," she said.