Bold Hard Money Lender Predictions for California for 2016

Lao Tzu says that “Those who have knowledge do not predict. Those who predict do not have knowledge.” Maybe, maybe not, but as someone who has been in the hard money lending business for 13 years as a lender, realtor, and real estate investor and knows the California real estate market inside out, I’d like to have my turn.

Most forecasters say that in 2016 home sales and prices will increase between 3% and 5% in California. Some brave people oppose the statistics by a percentage or two, but the consensus opinion largely follows that of the last few years. (rarely diverges). If you want to know what to expect next year, here is something that can help you:

It’s about interest rates

The state of the housing market in 2016 is going to revolve around mortgage rates. Affordability is going to be the main issue. Homes in California are already miserably unaffordable. As of early December 2015, all reports show that the Federal Reserve is planning to raise its rates. Higher rates are hardly going to mean lower prices. Conversely, if prices drop, inventory will be depleted (since there will be fewer sellers), sales volumes will drop, and prices will be forced up due to competition among the few active buyers.

On the other hand, the good news is that the Fed only intends to raise its rates to the point of keeping mortgage rates below 4.5%. This means that sales will remain low while prices slowly rise, but housing stock will hold air.

other predictions

In 2016, the demand for homes in California is going to grow. At the same time, houses will continue to be built for professionals who can afford it and for wealthy foreigners. House prices will continue to skyrocket. many loan modifications will default again. Many individual lenders, such as hard money lenders who make property-based loans, called a home equity line of credit (i.e., HELOC), will also see their loans cancelled. Some hard money lenders have become stricter about who they lend to. Most tend to scrutinize credit history as well as the value of collateral, but since many (particularly newer agents) focus heavily on collateral, lenders may miss some dire borrowers and experience bad loans. Meteorologists predict that this can happen a lot, but they assure that it will not get out of control. The most optimistic forecasters insist that the market is relatively affordable despite high prices. They insist that California is not, and will not experience, a housing bubble, and that home prices will remain somewhat affordable (whatever that means) for those with the means to pay for Trump-bombed housing. (Small consolation for the rest of us…)

Real estate predictions for 2016 for the nation as a whole

Redfin, a residential real estate company that offers a web-based real estate database and brokerage services, sees a fairly quiet real estate market next year. Here are Redfin’s five real estate market predictions for 2016:

1. Prices and sales will grow half as fast

According to a recent RealtyTrac report for more than a third of the nation’s major metropolitan areas, home prices hit all-time highs in 2015. California is one of these places.

Next year promises a raise. Sales will grow about half as fast as this year and prices will rise at a more normal pace of 3.5% to 4.5%, down from nearly 6% this year. Of course, some states (like California) will see prices higher than ever, while other states (like Detroit) will experience lower prices. Declining markets may fall further. Others can power themselves.

2. Easier credit

Americans, for whom mortgages have been out of reach in the past, may have a better chance of getting a home in 2016. Conventional and unconventional lenders will play with new ways of measuring credit. It is true that conventional lending institutions will be as recalcitrant as ever, but the trend is already in play where credit reflects households rather than personal history. For example, lenders will assess credit scores by reviewing a person’s rental history and utility bill payments. More loans will allow buyers to include rental income from rooms, parents who live with them and extended family members.

More importantly, a landmark bill was recently introduced in the House of Representatives that would allow Fannie Mae and Freddie Mac to consider credit scoring models in addition to the FICO Credit Score or other than the FICO Credit Score currently used by traditional lenders. to determine which loans to buy. . The times they Are a changing.

3. More (and older) first-time buyers

Redfin expects a new and ready market of first-time millennials who have been saving up and will give the market a shot next year. The reasons are simple: more credit options and slower price growth. Prices are high, but that shouldn’t be a problem for this year’s looming crop of millennials who have saved up for their investment. In the Mortgage Bankers Association’s housing report looking at the next decade, MBA Vice President of Research and Economics Lynn Fisher said, “Improving job markets will build on major demographic trends, including the maturing of the Baby Boomers, Hispanics and Millennials, to create strong growth in both the homeownership and rental housing markets over the next decade.”

4. Slower market, slower closes

Redfin is optimistic about the future. He expects the market to slow down in 2016 as government-backed loans become more common. There will be low inventory, but a lower ceiling on price escalation, as 2016 buyers will be unwilling or unable to climb as high as buyers have in recent years.

5. Ongoing inventory shortages

2016 will see fewer homes for sale than 2015, especially in the affordable sector. This is a growing pattern. Redfin found that the number of homes for sale dropped from 2014 to 2015 in 45 of the 60 metro areas and that inventory in the 60 metro areas was down 4 percent from a year earlier.

In shorts…

Housing across the country will experience an ever-increasing price. Costs will be reduced with a slight increase in interest rates. This, in turn, will dumb down the market. On the other hand, more millennials will become first-time homebuyers in large part because there may be more credit options for them to try.

As an experienced hard money lender, my predictions for California next year are that it will experience the same thing on a micro scale and 2015 will carry over into 2016 with little change. The situations that are unique to California are that the demand for housing will grow and properties will continue to be built in both commercial and residential areas. However, relatively few people of average means will be able to afford most (if any) of these houses. The slight increase in interest rates by the Federal Reserve may dampen prices slightly, but only, if so, by a meager percentage or two. Private money lenders may have to tighten restrictions as the number of bad loans is expected to rise. In general, experts insist that dire predictions aside, California is not in a housing bubble and buyers can still find affordable homes.

For personalized advice, you may want to approach a qualified hard money lender in California for guidance.