Housing affordability, which is expected to lead 2016 housing trends, will be a major bump in the road for potential first-time homebuyers in the next year. Meanwhile, fewer wallet-friendly options near city centers will make the suburbs appear more desirable to consumers, a report from Zillow showed.
In addition, Zillow reported that high rents will also pose an issue in 2016, forcing more young renters to hold off on purchasing a home for a longer period of time.
"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," said Dr. Svenja Gudell, Zillow's chief economist. "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. When they get there, they'll be looking for amenity-rich suburbs–mini-cities, with walkable cores and an urban feel."
Dr. Gudell added, "As renters gradually transition into homeowners, the historically low homeownership rate should stop falling quite as quickly as it has been. However, the median age of first-time homebuyers–already the highest it has ever been at about 33–will climb higher. Millennials want to buy, but they are waiting longer than previous generations."
Zillow also noted that the possibility of an interest rate increase from the Federal Reserve could further reduce the mortgage affordability the market has been experiencing with historically low rates. This will make "some homeowners think twice about selling, and many of them will decide to remodel their current homes instead."
According to Zillow, in 2016, the median age of first-time homebuyers will rise to new highs as millennials hold off on buying a home.
In addition, home value growth is expected to surpass incomes in 2016, particularly among low-income Americans. The bottom third of all incomes for consumers will not be able to afford even the least expensive houses on the market.
Next year is forecast to bring the least affordable median rents in history, Zillow says. Potential buyers will seek refuge in city outskirts, where there are walkable suburbs with an urban feel and good city access, as affordable city center housing declines.
Zillow's latest Home Price Expectations Survey showed that over 100 economic and housing experts predicted that home values will grow about 3.5 percent in 2016.
Click here to read the full report.