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Lafayette CA Real Estate – A Look at 2016

by Ron
January 10, 2016

It’s the beginning of a new year, and the most frequent question asked by current and prospective clients is about our expectations for the coming year in real estate. It’s a question that many would take lightly, but we understand that major life decisions get made based upon market expectations, and that the purchase and sale of real estate is often the largest single financial transaction that many face in their lifetime.

The world impacts Lafayette CA real estate

Financial markets have opened the year on a rocky road. Whereas the fundamental underpinning of the US economy seems to be reasonably sound, we are in a global economy and it is a very unstable, unpredictable place as we usher in 2016. Whether it is the irresponsible actions of a rogue nation, the tensions in the Middle East, the economic issues of China, the terrorist threats of ISIS, or some other exogenous event – this is a very challenging time to make forecasts.

According to the just-released Schwab 2016 Market Outlook, “Global central banks have monetary policies that provide ample liquidity. Low energy prices are helping to keep inflation in check and put money in consumers’ wallets. Overall, U.S. economic growth is likely to remain moderate.”  They remain cautious for 2016, but believe that tech and financial services will outperform the broader market.

That is a strong positive for Lafayette CA real estate since our economy is largely driven by those sectors. People vote their pocket book, and our real estate market will, to some degree, reflect the broader economy and market sentiment. Regardless, Lafayette is still in high demand, and there is an unsatisfied buyer need for housing inventory.

Lafayette CA real estate market predictions

We recently attended an in depth presentation by John Burns, the noted real estate economist and industry consultant. Mr. Burns is forecasting similar market growth to 2015 in the coming year. Looking further out on the horizon:

  • Slower economic growth each year until a mild recession in 2019
  • The known surge in retirement will slow the economy as growth in the number of people aged 20–64 will slow down to 0.5%+/- per year.
  • Mortgage rates will rise 20 to 30 basis points per year.

Lafayette real estate is impacted by the phase of US economic recovery

 

 

Job growth and affordability are key drivers in the housing market. Interest rates are headed upwards as the Fed withdraws its artificial support for the economy. Higher rates directly correlate to downward pressure on affordability, which logically impacts appreciation. We should expect continued normalization in the Lafayette CA real estate market, although we greatly benefit from the buffering provided by the robust Bay Area economy and strong tech and financial services growth.

To underscore the impact that rising interest rates will have on home affordability, the following chart makes it extremely clear:

As interest rates go up, affordability becomes an increasing important issue for Lafayette CA real estate

 

Our next post will look at the expected impact upon Lafayette real estate.  Stay tuned…