It is the time of year when New Year’s predictions are made, and real estate trends are a hot topic for forecasting right now. This week, Boston was named one of the top ten real estate hot spots for 2016 by online real estate destination, Realtor.com.
By looking at 100 of the largest housing markets in the United States, and relating market trends to economic data, real estate “hot spots” are predicted. These hot spots are said to have a strong likelihood of increased home sales and financially able buyers.
It sounds exciting, but what does it mean to be deemed a real estate hot spot? For one thing, it means that the city of Boston and surrounding areas are positioned for ample growth in both pricing and home sales for 2016. It also means that real estate activity in Hingham, Cohasset and other Boston suburbs will have more motivated home buyers and sellers than in other parts of the country.
Jonathan Smoke, Chief Economist with Realtor.com, said Wednesday that total homes sales in 2016 are expected to reach the highest levels since 2006, and that new home starts will increase by 12 percent.
Millennials (those 25 to 34 years old), Gen Xers (35 to 44 years old), and retirees (65 to 74 years old) will potentially drive robust home sales in 2016 .
Millennials have been viewed as absent from the real estate market until 2015 when they accounted for 30 percent of the home sales market in 2015, according to National Association of Realtors.
Smoke added, “That’s higher than it has been the last couple of years and trending towards normal, which is more around 36, 37 percent.”
Millennials provide the mysterious building block of data to all the forecasters. They are the largest generation in the U.S. labor force right now, and seen as a critical link in the real estate chain of events. By making their presence known to the real estate market, Millennials will fill a glass that is one third empty. It is hoped that they will make up the largest share of the homebuyer population in 2016.
Each of the Realtor.com’s ten metropolitan areas are in high demand, with 60% more listing page views than other comparison locations, and inventory that sells 16 days faster than the U.S. average. Surging demand in each market can be attributed to expanding households, a more prosperous job market, and lower unemployment rates.
Here is Realtor.com’s list:
1) Providence and Warwick, Rhode Island
2) St. Louis, Missouri
3) San Diego and Carlsbad, California
4) Sacramento, Roseville, Arden, and Arcade, California
5) Atlanta, Sandy Springs and Roswell, Georgia
6) New Orleans and Metairie, Louisiana
7) Memphis, Tennessee
8) Charlotte, Concord and Gastonia, North Carolina
9) Virginia Beach, Norfolk, and Newport News, Virginia
10)Boston, Cambridge and Newton, Massachusetts
How Real Estate Market Predictions are Made
Seeing as predictions are in season, knowing more about the facts behind the statements is an informative exercise in critical thinking.
Realtor.com and Smoke’s data collection came from a robust analysis of movement in new home sales, existing home sales, median new home prices, inventory movement, and listing page views to discern which markets will see the most action in 2016.
In order to arrive at the final ten, Smoke’s team of researchers looked at past market behaviors and came up with a statistical process that, when used to analyze the data, forecasted with a strong degree of certainty, which metropolitan areas were most likely to have the best market activity.
Other Real Estate Trend Forecasts for 2016
There are other economic real estate experts weighing in on the 2016 housing market predictions. One person is Trulia’s Chief Economist Ralph McLaughlin. To determine future real estate growth and activity he used variables like job growth rate, low vacancy rates, high affordability, inbound home searches vs. outbound home searches, and a the percentage of millennials (Americans ages 24 to 35) living in each area.
McLaughlin’s data net found a list of places that, in his analysis, were most desirable based on affordability and job growth.
These areas were:
Grand Rapids, Michigan
Charleston, South Carolina
Baton Rouge, Louisiana
San Antonio, Texas
Colorado Springs, Colorado
Columbia, South Carolina
Riverside and San Bernardino, California
Las Vegas, Nevada
Zillow also weighed in on the real estate forecasts for 2016 by describing more about people’s preferences and overall shifts in housing needs. They predicted the median age of first-time buyers will rise in 2016 as millennials put off homeownership a little bit longer, and people will look to the suburbs with more of an “urban feel,” or that have a centralized downtown section and amenities are within walking distance. This means that quaint South Shore towns like Hingham, Cohasset, and others fit this bill.
Zillow Chief Economist Dr. Svenja Gudell said, “People’s preferences have started to change. 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. And as renters gradually transition into homeowners, the historically low homeownership rate should stop falling quite as quickly as it has been.”
That Being Said… A Note About Prediction
Now that you have an overview of real estate predictions for 2016, consider that predictions are correct a little over 50% of the time. According to journalist and author Dan Gardner in his 2010 book, Future Babble (McClelland and Stewart), the average expert is no more accurate than a flipped coin would be. Then consider that forecasters are rarely held accountable for incorrect predictions.
But we are predicting creatures and our brains long for certainty about the future. The skills to predict outcome signals intelligence. To make an informed decision about the trail of a falling rock ball, or the path of a lightning storm is about survival. Like other animals, we look at patterns and make assumptions about the future. Perhaps this works for migration, or planting crops, but the modern world is increasingly complex and unpredictable.
For events that occur over and over again, under the same circumstances, patterns, or data, will most certainly be a guiding light. But there are multiple variables that add novelty, and novelty will weaken patterns. Even so, we imagine there are patterns. And this is why predictions are a coin flip; people overestimate their ability to find patterns in random events.
Thinking in terms of possibility rather than absolute certainty helps curb emotional reactions to good and bad predictions. At the same, having an optimistic outlook about the Hingham real estate market magnifies the positives already in place.