2015 Real Estate Trends to Expect
Domumo expects the U.S. housing market to continue strengthening alongside the broader economy throughout 2015. The U.S. economy is poised to grow around 3% next year—only the second year in the last decade with growth at that pace or better. Coming off solid price gains in 2014, look for real estate investors to cash in this year, thus increasing the supply of homes to the market and bolstering home sales activity. In short, here are 3 particular trends we expect in 2015.
3 trends to expect in 2015.
Interest rates will climb throughout 2015, with yields on the 10-year Treasury averaging about 2.9 percentage points, up from about 2.6 percentage points in 2014, and rates on the 30-year fixed mortgage steadily climbing, averaging 4.6% and rising to just under 5% by the end of next year.
Average home price appreciation will slow down to 3% this year in the U.S. while home sales activity increases throughout 2015. Despite rising interest rates, the improving U.S. economy will augment home sales and encourage those who have been on the fence to buy.
Varying behavior among investors; rising mortgage rates will dampen buyer affordability and slow down the rate of home appreciation. Investors will move their assets into more profitable sectors; foreign investors still find U.S. real estate more appealing.
Mortgage rate stability will play an important role in convincing some prospective buyers to take the plunge, especially as Fed officials debate when to raise their benchmark interest rates for the first time since 2006. Conversely, an impending rate rise may encourage some buyers to jump into the market.
The average rate for a 30-year fixed mortgage was 3.80 percent in the week ended Dec. 18, according to Freddie Mac in McLean, Virginia. That’s the lowest level since May 2013, when then-Fed Chair Ben S. Bernanke signaled that the central bank could start to slow its monthly pace of bond purchases if the economy showed sustained gains.
For 2015, strong job growth, low mortgage rates and an easing of lending standards will continue to provide support for the housing market. CoreLogic reports October 2014 national home prices increased by 6.1 percent year over year, and by 0.5 percent month over month.
An Improving Economy and Housing Market
Freddie Mac forecasts economic growth in 2015 will be just under 3 percent, with projected home sales up around 4 percent in the coming year (see U.S. Economic and Housing Market Outlookreport ). But while the economy continues to push forward, so will the long-term Federal funds rate.
The Federal Reserve will likely start boosting the Federal funds rate in 2015 yet there remains a wide range of opinions on when it should rise and by how much. Historically, interest rate spikes have softened real estate growth, however, when such rate increases are coupled with strong job and income growth, the net result can be increases in household formations, construction, and home sales. My Listings Agent , view for 2015 will factor income and job growth and offset the negative effect of higher interest rates and translate the data into measurable gains for the nation’s housing market.
National Association of Realtors chief economist, Lawrence Yun, expects the improving economy will provide welcome relief to home-buyers, saying,
The job market has shown continued strength in the past six months. This bodes well for solid demand to close out the year and the likelihood of additional months of year-over-year sales increases.” “
One of the better indicators about the strength of the job market is the quit rate. Typically, a person will quit their job only if there is a good prospect of finding a new one. Recent trends show increased quit rates and increased job opening rates. Continuing job mobility is projected to spill over into the real estate market also, since transitory employment trends bolster buying/selling activity.
For buyers who are looking for more moderately priced homes, 2015 will be the year to buy. Barclays predict the growth of home values will slow to around 3 percent per year instead of the 6 percent average shown over the past few years. With home-price appreciation expected to flatten out, this should give homeowners an incentive to sell before prices dip again, bringing a surge of inventory into the market.
Home Sales to Pick up Pace
After peaking this past October, the pace of existing home sales has slightly pulled back. Totalexisting-home sales, which include single-family homes, townhomes, condominiums and co-ops, fell 6.1% to a seasonally adjusted annual rate of 4.93 million in November, the lowest annual pace since last May (4.91 million).
NAR chief economist, Lawrence Yun , admitted sales activity was choppy throughout the country in November and housing inventory began its seasonal decline. “Fewer people bought homes last month despite interest rates being at their lowest levels of the year,” he said. “The stock market swings in October may have impacted some consumers’ psyches and therefore led to fewer November closings. Furthermore, rising home values are causing more investors to retreat from the market.”
All-cash sales were 25 percent of transactions in November, down from 27 percent in October and 32 percent in November of last year.
They purchased 15 percent of homes in November, unchanged from last month and below November 2013 (19 percent). Sixty-one percent of investors paid cash in November.
The percent share of first-time buyers in November climbed to 31 percent, up from October (29 percent) and is the highest share since October 2012 (also 31 percent). First-time buyers have represented an average of Properties typically stayed on the market in November longer (65 days) than last month (63 days) and a year ago (56 days). Short sales were on the market the longest at a median of 116 days in November, while foreclosures sold in 65 days and non-distressed homes took 63 days. Thirty-two percent of homes sold in November were on the market for less than a month.
In recent months, we’ve seen American investors move assets away from Single Family Home purchases. Although, the commercial real estate sector, is still attractive to American and foreign investors. We can expect this trend to continue through 2015. As home price appreciation begins to taper off, American investors are simply moving their money away from Single Family home investments and into more profitable assets.
However, foreign investors are still finding single family homes, particularly high-end homes, appealing because of economic instability in their home countries. For example, the U.K. is proposing a so-called ” mansion tax ” that applies to individuals who own homes worth more than 2 million British pounds (or over $3 million). This made the demand for houses soar to even higher levels than expected. According to latest data from the National Association of Realtors, by the end of 2013, foreign buyers had increased to $68.3 billion of single-family homes, which is about 7% of total population in the U.S. With growing access to U.S. property search websites in foreign countries it appears these foreign investment trends will remain on the rise.