5 Reasons Redfin Says 2016 Looks Good for the Housing Market

While the 2016 housing market is expected to experience a decline in activity, many economists believe that this slowdown could be a positive for the industry.

Redfin reported Monday that the swiftly approaching new year will be pretty dry to say the least, but moderate growth could mean a better, more sustainable market for buyers.

"Next year holds a few interesting developments, some good for housing, some bad. Easier credit will bring in more buyers, but higher mortgage rates, continued low inventory and the wildcard of a presidential election will weigh down growth," Redfin noted.

"All things considered, we see a fairly uneventful housing market next year," Redfin continued.

Redfin's 2016 Housing Market Predictions:

1. Prices and sales will grow half as fast

As price growth ebbs and mortgage rates rise, more homeowners will stay put. Sales will grow about half as fast as they did this year and prices will rise at a more normal 3.5 percent to 4.5 percent, down from almost 6 percent this year.

CoreLogic's Home Price Index (HPI) report for October 2015 showed that home prices are up 6.8 percent year-over-year and 1.0 percent month-over-month. Last month, home prices were up 6.4 percent year-over-year and 0.6 percent month-over-month.

CoreLogic forecasts home prices to rise 0.1 percent next month and 5.2 percent next year from October 2015 to October 2016.

2. Easier Credit

Lenders will embrace new ways to measure creditworthiness and mortgages will evolve to serve a changing American household. For example, credit scores will better evaluate a person’s rental history and utility bill payments. More loans will allow buyers to include income from room rentals, live-in parents and extended-family members.

As of now, Fannie Mae and Freddie Mac only consider the FICO credit scoring model when making mortgage purchase decisions. A bill introduced last week is trying to change this singular model and move toward a more multifaceted model.

3. More (and Older) First-Time Buyers

The reason is simple: The market will be more welcoming to them thanks to the aforementioned slowing price growth and easier access to loans. This year’s market dropouts have saved for bigger downpayments and will be ready to give the market another shot early next year. And more of those millennials who had been holding off on buying for various reasons will finally be ready and able to in 2016.

A report released today from the American Enterprise Institute's (AEI) International Center on Housing Risk showed that looser credit standards brought an influx of first-time homebuyers in November 2015. First-time buyers made up 56.7 percent of primary owner-occupied home purchase mortgages with a government guarantee.

4. Slower market, slowing closings

We expect the market to slow in 2016 as government-backed loans become more common and cash sales become less so. Because of low inventory, bidding wars will still be in force next year, but there will be a lower ceiling on price escalation as 2016 buyers won’t be willing or able to go as high as buyers have in recent years.

RE/MAX's October 2015 National Housing Report showed that inventory proved to be weak in October, falling 5.7 percent month-over-month ans 13.1 percent year-over-year. The average loss of inventory from January to October is 11.9 percent. The months supply of inventory in October was unchanged from September at 4.5.

5. Continuing Inventory Shortage

The biggest risk to the 2016 market will be the continuation of inventory shortage, especially in the affordable segment of the market. The number of homes for sale shrank from 2014 to 2015 in 45 of the 60 metro tracked by Redfin. Inventory across all 60 metros is down 4 percent from a year ago.

With the fall season well underway, the housing market is showing signs of slowing down with declines in demand and inventory. Realtor.com found that October listings are also moving slower than in September, with the median age of inventory now at 81 days, up one day from September but down three days, or 7 percent, from last year.

Editor's Note: Want to read more about the 2016 Housing Market? Be sure to read MReport's December 2015 Cover Story "The Way the Cookie Crumbles."