I know that the calendar says it is spring. I also know that Easter and Passover are coming weekend. Though, like many others, I just don’t know where the spring weather is! For those of us in the residential housing game, which each year feels more and more like a Game of Thrones, the spring weather is very important. For sellers and buyers alike, there is a big psychological boost when warm weather finally arrives. Like the Israelites roaming the desert, the homebuyers are looking for a sign from above that it is time to enter the Promised Land (of homeownership)!
 Photo via mypreferredlender.net I am hoping that we finally get some warm weather next week. And, while knowing that “hope” is not an effective business strategy, I am still predicting a very strong housing market. Though the “so called” experts only expect housing prices to rise about 3% over last year’s prices, I think that the increase will be significantly larger. I am expecting the increase to be more like 5%-8% possibly higher. As for the number of previously owned home sales which decreased to 4.93M nationwide in 2014 from 5.09M in 2013, I see a reversal of this for 2015. I believe that nationwide we will be slightly above the 5.09M number.
First of all, interest rates have continued to remain low despite the dire predictions for this year. Since rates have actually decreased, not increased since January 1st, home affordability has improved since 2014. With the higher employment numbers so far this year, more people are in a position to buy a home now than they were last year.
In addition, the banks are finally easing up on their credit requirements. In January, the Federal Housing Administration (i.e. FHA) dropped their mortgage insurance rates from 1.35% to .85%. Here is a link to a 2 minute video about this reduction and it’s effect — Changes to FHA Mortgage Insurance Premiums January 2015. With FHA loans allowing credit scores down to 580, low downpayments (including gifts and up to a 6% seller’s concession); and debt-to-income ratios as high as 55% of gross income (with income from non-occupying co-borrowers included), these loans will enable a lot of people to buy homes.
Other new first time home buyer programs were implemented by Fannie/Freddie which now allow for a 3% downpayment with credit scores as low as 620. This will allow home buyers with less than $10k down to buy a $300,000 house or apartment! For more information and for each of their specific program requirements (since they vary slightly), you can view this short You Tube video. — Fannie Mae and Freddie Mac 3% Downpayment for Conforming Loans.
There is also pent up demand for housing. The leading edge of the Millennials, who are now in their early 30s, are being “forced” by demographics, income and family size to purchase homes. Though they prefer to stay flexible by renting and live in/near cities, like those of us who came before them, there comes a time when practicality and affordability (i.e. realization that you are no longer so young), trumps desire. For many of the older Millenials, that time is now!
On the other end of the demographics are the folks who are retired or semi-retired and looking to unload the family home that they no longer need. For these people, who held out for higher prices after the housing collapse, housing prices, though not back to 2006 levels, have returned enough for them to consider selling. The irony is that it is the clash of these two very similar generations, the formerly largest and most selfish generation of Baby Boomers with the (unbelievably) even larger and more selfish Millennials, will together bring back the housing market beginning this year. Their “partnership” will also allow the improvement to continue for the next several years, and probably accelerate as well.
So, there you have it. IMHO, there will be a very strong purchase market this year. But, if this does not occur, I will be back in the fall to tell you why. Since, like the rest of the “so called” experts, if I am wrong, it won’t be my fault. Rather it will be caused by something happening that was unexpected (at least to me)! |
