As 2015 rolls forward, there are several indicators that the housing market may have a break-out year.
Alone among big Western economies, the United States is poised for solid growth in 2015, fueling job creation and keeping home sales on an upward path. The National Association of REALTORS® forecasts that existing-home sales will reach 5.3 million, an increase of almost half a million over 2014. The national median home price will rise, too, but at a sustainable 4% rate, to just below $216,000.
Increasingly confident renter households will enter the home buying market after watching rental growth rates hit a seven-year high. And households that were forced into foreclosure or a short sale during the housing crisis several years ago could begin streaming back to the market, too.
As more Americans took to renting when the housing market took a tumble, rents began to increase, and are currently at a seven-year high.
While renting offers flexibility and low-stakes living for millennials, a recent survey by Fannie Mae showed 9 in 10 would prefer to own, if it was possible. In December, both Fannie Mae and Freddie Mac announced programs that would allow first-time buyers to secure homes with low down payments (three percent instead of the previously stated five percent) which will open up the doors for young people with high debt and low savings.
“With rents now rising at a seven-year high, historically low [interest] rates and moderating [home] price growth are likely to entice more buyers to enter the market in upcoming months,” says Lawrence Yun, the National Association of Realtors’ chief economist.
The latest data from government statisticians showed job openings at their highest level since 2001 — to a seasonally adjusted 5 million openings. All indicators suggest that not only is the labor market tightening fast and increasing opportunities for out-of-work Americans, but it’s setting the stage for a powerful surge of wage increases later this year that should encourage more renters to transition to homeownership. We could already be seeing signs of this. A just-released Fannie Mae survey found that 67% of Americans think now is a good time to buy a home (up from 64% in December) while 44% of sellers think now is a good time to list (up from 40%).
Sales will also be bolstered by the expected return of more reasonable mortgage underwriting standards that were in place prior to the housing boom. This shift by lenders will help soften the impact of gradually rising interest rates, which NAR expects to top out just below 5% this year. If interest rates defy expectations and remain close to where they are currently, this will be another boost to housing sales.
However, not all is looking up for housing in 2015 and economists are predicting that, as prices stabilize, mortgage rates may begin to drift upward, settling near five percent by the year’s end. While this number is still very low historically speaking, it’s higher than these ultra low rates we’ve become accustom to.
Home prices between the top and bottom segments of the housing market are rising, a trend that is likely to continue and which could unleash a “domino effect” that builds first-time and move-up buyer momentum this year.
The lower and middle-range ends of the housing market are stabilizing, allowing traditional home buyers to re-emerge and the next phase of the housing recovery is largely dependent on healthy demand from this segment.
Last year, 78 central Ohio homes sold through the Multiple Listing Service for more than $1 million, the most since 2006 but still shy of the record 93 million-dollar homes sold in 2005. The upper tier is moderating which may entice move-up buyers to enter this segment of the market. The ripple effect of an opening up of inventory all the way down the price spectrum could provide opportunity and motivation across all segments, including first-time buyers, to enter the marketplace.
While the lower-end of the housing market was once driven mostly by investor activity, doors are now opening for first-time home buyers to re-enter the market. Also, as the number of underwater mortgages steadily decreases, home owners in the mid-tier of the home pricing segment can finally trade up to a larger, more expensive home.
This divide between a healthy low tier and slowing top tier could kick-off a domino effect. Stalling prices in the top tier of the market could create the perception of a good deal. This instills confidence in mid-tier home owners, motivating them to move-up to the top tier. In turn, this opens up more opportunity for low tier home owners to move-up to the mid tier. … This domino effect could be the catalyst for balanced demand across all sectors of the market.
In addition 2015 is expected to be the break out year for sellers. While home owners have been living in their homes longer. Typically, home owners stay in their homes six or seven years before making a move. But in 2014, that number grew to a 10-year average, this according to research by the National Association of REALTORS®. These researchers are predicting that “pent-up sellers” will likely be unleashed in 2015, after regaining equity and feeling more confident as a result of the overall economic recovery.
Many home owners have been staying put longer due to the after-effects of the housing crisis, which placed a large number of home owners in underwater status, owing more on their mortgage than their home is currently worth. Many home owners have been waiting on home values to edge higher before selling. For many home owners, that has finally happened: Home values in Columbus and Central OH are up 18% over the past three years, on average. Locally the average sales price of a home is $183,099, this is 2.9% higher than the average home sale price of $177,078 in 2005 during the height of the housing boom.
Home prices are likely to re-accelerate unless more inventory becomes available. This is already happening in many parts of the country and in the spring and summer of last year, the median price was rising at 4 to 5%. In November and December, the prices rose by 6%.
Low inventory and the ability to find the right property is a key contributing factor to rising price – supply and demand. During 2014, more home sellers experienced multiple offers and same day contracts. Central Ohio homes sold for 94.0% of the original list price during 2014. More importantly, homes sold for 96.9% of last list price. The reason, buyers who need to buy and who might have already missed out on a home or two are much more willing to pay more for the next home to avoid missing out on the next opportunity.
In 2015, we expect stronger seller activity to increase inventory levels, which could alleviate shortages in certain areas and segments resulting in increased overall sales volume with more moderate price gains in those markets that see the largest increases in inventory, and accelerated increases in low inventory high demand markets.
We are already seeing an overall increase in buyer and seller activity in many local markets as buyers and sellers attempt to get out ahead of the busy spring rush, and to take advantage of these low mortgage interest rates.
Again, improving job market, low mortgage rates, and recent moves by the government to loosen up mortgage credit are fueling increased optimism and if the economic tailwinds stick around as they should, housing should have a break out year in 2015.
If you, or someone you know is considering Buying or Selling a Home in Columbus, Ohio please contact The Opland Group. We offer professional real estate advice and look forward to helping you achieve your real estate goals!
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