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Investing in Real Estate: 2016 US Housing Market Outlook

house cutout held up to sun

  |  By Chris Shanahan, CISP®

Welcome to 2016, where the US housing market is operating in a rising interest rate environment for the first time in nearly a decade. The Federal Reserve raised rates in December, and it signaled that it would make four more quarter-point hikes this year.

A survey conducted by Harris Poll for Trulia last year found that 22% of Americans thought it would be harder to get a mortgage in 2016 than it was in 2015, and a Bloomberg News poll of economists found that 80% expected mortgage rates to rise.

While it remains to be seen how much the Fed’s interest rate rise will affect the US housing market, real estate remains a top alternative asset held by PENSCO’s clients in their self-directed IRAs. In fact, 32% of new accounts opened at PENSCO in the first three quarters of 2015 invested in real estate.

Retirement investors favor owning real estate in a self-directed IRA for its income generation and as a hedge against inflation. A survey of nearly 1,000 clients that we conducted last year found 52% of respondents said they were likely to increase their retirement portfolio allocation to real estate, ranging from single-family investment properties to non-traded REITs.

Many PENSCO investors own single-family homes in their self-directed IRAs that they rent to tenants. According to Core Logic, rental vacancy rates are at or near their lowest levels in 20 years, and rents are rising faster than inflation. High demand for rental homes--both apartments and houses--will likely continue in 2016, especially from new, young households.

Below, we’ve rounded up a few forecasts of what the real estate industry is predicting for the housing market in 2016 along with some forecasts for the year’s hottest housing markets:

  • Zillow predicts that 2016 will be all about housing affordability, with a lack of affordable homes near city centers pushing young and first-time buyers out to the suburbs. The real estate site said popular markets in 2016 could be dense, walkable suburbs with urban amenities. Zillow also expects rents will soar in 2016, bringing the highest median rents ever.
  • Trulia’s outlook: Trulia expects some of the hottest housing markets to continue cooling in 2016, but it has identified ten markets that have potential for growth in the year ahead. Trulia said the markets exhibit strength in five key metrics: strong job growth over the past year, low vacancy rates, high affordability, more inbound home searches than outbound, and a large share of millennials.
    1. Grand Rapids–Wyoming, MI
    2. Charleston, SC
    3. Austin, TX
    4. Baton Rouge, LA
    5. San Antonio, TX
    6. Colorado Springs, CO
    7. Columbia, SC
    8. Riverside–San Bernardino, CA
    9. Las Vegas, NV
    10. Tacoma, WA
  •’s outlook: Its hot list is made up of ten markets that are seeing high demand, with 60% more listing page views than the U.S. overall and inventory that sells 16 days faster than the U.S. average. said surging demand in each market can be attributed to growing household formation, a prosperous job market, and low unemployment rates as well as large populations of key demographics. predicts that older millennials (25 to 34 years old), younger Gen Xers (35 to 44 years old), and retirees (65 to 74 years old) will be driving home sales in 2016.
    1. Providence, RI
    2. St. Louis, MO
    3. San Diego, CA
    4. Sacramento, CA
    5. Atlanta, GA
    6. New Orleans, LA
    7. Memphis, TN
    8. Charlotte, NC
    9. Virginia Beach, VA
    10. Boston, MA

If you are an individual investor and you want to learn more about how to invest in real estate with your self-directed IRA, you can download PENSCO’s guide, Tax-Advantaged Real Estate Investing Guide. If you’re a real estate professional and you want to learn more about helping your clients purchase property using their self-directed IRA dollars, please download our guide, Growing Your Real Estate Business Using Retirement Capital.

PENSCO’s Blog is purely for educational purposes.  PENSCO does not provide investment, tax, or legal advice nor does it evaluate, recommend or endorse any advisory firm or investment vehicle. Individuals are encouraged to seek professional advice before making any investment decision. Investments are not FDIC insured and are subject to risk, including the loss of principal.