How's the market shaping up this year? Here are our 8 predictions for the 2016 Madison real estate market.
Prediction #1: The Madison rental market will remain tight.
Apartment vacancy rates will remain low, even though construction is booming with thousands of new units planned for 2016 and 2017. Dane County's apartment-hungry population continues to absorb new inventory, thanks in large part to the growth of Epic Systems and other local tech companies. The latest vacancy rate data from MG&E shows apartment availability is very tight.
Prediction #2: Madison apartment rents will rise.
A shortage of available rentals means rents will rise in 2016. And rising rents will force some apartment dwellers to choose home ownership over renting. Apartmentlist.com provides some interesting data on local rents. Their data shows the median rent for a Madison 2-bedroom apartment was $920 in December. This was a 2.6% increase from the median rent in December, 2014. Anecdotally, we're hearing from many first-time buyers that their rents are rising at a much faster clip than 2.6%.
Prediction #3: Mortgage rates will rise but remain cheap.
Mortgage rates will rise in 2016 but remain historically cheap. Freddie Mac predicts the rate for a 30 year fixed rate loan will average less than 4.5%. To put this in perspective, the average rate for a 30 year loan dating back to 1972 has been 8.4%. As of this post, Great Midwest Bank is offering its 30 year mortgage for 3.75%.
Prediction #4: Home and condo demand will continue to build.
Several factors will feed the demand for local homes and condos. These include a strong Madison job market, a scarcity of available apartments, rising rents, and attractive mortgage rates. Although housing demand will be strong, home and condo inventory will be limited. Expect another wild year of multiple offers and bidding wars, as agents and buyers continue to explore creative strategies for finding and buying real estate. Some would-be buyers will opt to sit on the sidelines rather than enter the fray of this year's market.
Prediction #5: Home building will increase moderately, condo building barely at all.
New home construction is on the rise in Madison, but in moderation. Speculative home building, which was the norm 10 years ago, is much less prevalent now. We expect housing starts for single family homes to increase by about 10% in 2016. New condominium construction will remain very light. A limited supply of new construction homes and condos is one reason inventory will remain tight in 2016. This year is shaping up to be another "seller's market".
Prediction #6: Madison foreclosures will decrease.
Madison area foreclosures have decreased 5 years in a row and are now at their lowest levels since 2004. We expect the decline to continue in 2016 - by about 10%. Five years ago foreclosures accounted for 30% of the local housing inventory. This year the percentage will be about 5%. Declining foreclosures are another reason why home and condo supply will be low in 2016.
Prediction #7: Madison home and condo supply will remain very tight across many price categories.
Inventory will be in short supply once again in 2016. The market will favor sellers with single family home listings priced at $350,000 and under. Condo sellers will love $250,000 and under. Many locations which were strong buyer markets several years ago (for example, Downtown Madison), will be very hot in 2016.
This is a phenomenon that will tend to feed upon itself until a fresh supply of inventory becomes available. For example, a large number of home owners remain "stuck" in their current home because they can't find a suitable condo to downsize into. The market is ripe and ready for a fresh supply of new condominiums, but for the most part new condo construction remains non-existent.
Prediction #8: Madison home and condo values will continue to rise.
Strong demand and limited supply will lead to rising home and condo values in 2016. For more information on your local market, check out this reporting tool from the South Central Wisconsin MLS. There are many ways to measure prices, each with its own limitations. This post from the Calculated Risk economics blog offers some great insight from a macro perspective.
Contact our team anytime you'd like to chat about your housing situation or the market in your area. We'll help you make sense of it.
This article is published courtesy of: Dan Miller, REALTOR Mad City Dream Homes & RE/MAX Preferred