2015 is officially here, and the new year is bound to bring a number of ups and downs to our local housing markets. Here are 8 Housing Market Predictions (courtesy of The Huffington Post and CNN Money) that you can use to plan your housing goals for this year – we hope this helps you prepare for any decisions to buy or sell a home in 2015!
- Mortgage rates will begin to increase again.
As the economy continues to improve, we will see an inevitable increase in mortgage rates. The Federal Reserve will be raising federal fund rates from their current low of nearly zero for the first time since 2008. Realtor.com’s chief economist Jonathan Smoke is predicting that the increase will occur mid-year in 2015, which means we can expect mortgage rates to increase preemptively. Mortgage giant Fannie Mae’s chief economist says that although he doesn’t expect a huge jump in mortgage rates, the Federal Reserve can be unpredictable. If the Fed sets their benchmark significantly higher than the projected rates, buyers in high-priced markets like the Bay Area could find themselves spending more than 50% of their income on housing.If rates get too high, the average market price will have to come down to compensate – or risk very slow sales. Smoke expects that the increased rates will shift mortgages from a fixed-rate format to adjustable-rate or hybrid mortgages instead.
- Millennials will start to buy their first homes.
This group of young adults born between 1981 and 2000 have had a tough entry into the economy. Many of them graduated college and headed straight into one of the worst job markets in decades. However, with the economy finally seeing some improvement, more of the older millennials have finally secured solid employment with decent pay. At the same time, this older group (ages 25-34) is approaching the prime time for marriage and babies. This generation is bigger than the baby boomer generation, so it’s not too surprising that Smoke estimates that millennials will account for 2/3 of household growth in the next 5 years. However, tough credit restrictions and a lack of credit history may push this group into certain areas of the country where housing is more affordable (the Midwest and the South.)
- We will see an increase in new construction.
The past few years have been slow for builders, with only around 1 million housing starts in 2014 (most of which were multifamily homes.) Jonathan Smoke (realtor.com’s Chief Economist) is predicting a 21% increase in the number of new single-family homes in 2015 – a major contributing factor to the forecasted 16% growth in total housing starts. However, supply will still be tight in many markets as we continue to experience a shortage of labor and building materials.
- Strict credit qualifications will prevent many would-be buyers from getting loans.
Despite the recent easing of lending standards by mortgage giants like Fannie Mac and Freddie Mac, lenders are still skittish when it comes to potential borrowers with less-than-perfect credit. Without a large cash down payment, first-time homebuyers or former homeowners who lost their homes to foreclosure in the recession could face a serious lack of access to credit. Many millennials are struggling to find loans under the burden of heavy student debt (and with shorter credit histories than older buyers.) While this certainly makes it tough for people with poorer credit to get loans, it does keep the market a little more open for buyers with strong credit histories.There are currently an estimated 500,000 – 750,000 potential homebuyers who are unable to get the loans they need, which means that if the lenders were to suddenly open up credit access to this group, we could see an influx of buyers in the market. The important thing will be to find the balance between the number of potential homeowners and the number of available homes to purchase or build new.
- The foreclosure crisis will continue to wind down.
2014 marked a year of improved composition of sales, with short sales and foreclosures down more than 30%. Experts predict that 2015 will see an even greater decrease in the foreclosure inventories, and they expect this trend to be visible across the nation. Of course, each housing market has individual trends and tendencies, so some areas may experience a lesser improvement than others (depending on local supply-and-demand conditions.)
- Institutional investors will start to withdraw.
Big institutional investors were able to buy lots of properties during the recession, allowing them to gain additional rental incomes and also giving the housing market a boost during the recovery process. As housing prices started to rise over the past few years, many of these investors are now looking at returns of 40% or higher – if they sell now. The rate of increase in housing prices is finally starting to slow, and 2015 appears to be the optimal time for these institutional investors to convert their rental properties into cash. This should add some inventory back into the housing market, and regular homebuyers will be able to avoid the insane bidding wars of previous years.
- Foreign investment will slow.
As the US economy improves and the dollar continues to grow in strength, housing investments will become more expensive for foreign buyers. China is experiencing a strong economic growth of their own, and will probably continue to invest in housing (especially in California), but many European and Russian investors will no longer see US housing as a viable option. With the dramatic drop in value of the Russian ruble, the choice US housing markets may become prohibitively expensive to Russian buyers.A related article on CNN Money explains that the Russian government is tightening its currency restrictions, which makes it more difficult for Russian nationals to move large amounts of money out of the country. It’s even making it difficult for existing homeowners from Russia to move the smaller amounts of money they owe for maintenance and property taxes. However, some real estate agents think that the declining value of the ruble and the increasing number of sanctions may actually drive sales to the wealthy Russians who are lucky enough to get their money out of the country; America’s solid economy and strong dollar could mean a much safer investment for these individuals.
- Incomes may not be high enough to match home prices.
Although we are definitely experiencing an uptick in the economy, with significant growth in many job sectors, the salaries are not necessarily keeping pace with the cost of living in many of the in-demand markets. Many people are accepting jobs at a much lower salary than would be available in pre-recession times, because the supply of jobs is still fairly low. Lower salaries, coupled with the skyrocketing cost of living in many hot spots (like the Bay Area), mean that home ownership will remain out of reach for many who wish to buy.A side effect of this trend of unaffordable housing in popular markets is a quick expansion of the markets in the nearby suburbs. Areas that may have previously been considered undesirable locations, or would create too far of a commute, are now gaining popularity with buyers who just can’t afford to live where they work. Although this will be disappointing to potential buyers who will have to settle for a home outside of their metropolitan area, it could be a boom to potential sellers in the suburbs as the demand for homes in their areas increase.
To learn more about how these predicted trends might impact your decision to buy or sell a home in 2015, please email me at firstname.lastname@example.org or call me at (408) 605-8741. I am currently offering a FREE market analysis to help you get the most for your home in the current market – click here to request your home evaluation.