According to Realtor.com's 2014 Housing Review, this year demonstrated a steady build-up of housing momentum - fueled by significant improvements in economic fundamentals, low mortgage rates, and compressed inventory - and is expected to carry the market into 2015 gains.
Sounds like great news, right? Well....actually, it depends on your situation.
Top 5 Housing Predictions for 2015:
1. Millennials will drive household formations: Both population and households have grown at a slightly higher pace in 2014 and this trend will continue in 2015 with modest improvement over this year's increases. Households headed by millennials will see significant growth as a reflection of economic gains. Millennials will also drive two-thirds of household formations over the next five years. Next year's addition of 2.75 million jobs and increased household formation will be the two key factors driving first-time buyer sales.
As the largest generation, Millennials are having a big impact on housing....and they love them some Denver. Live Urban's office was kept buzzing this year by these excited young adults...they're getting married, they're having babies, they have money to spend and jobs to secure loans...their price range is often higher thanyesteryear's first-time buyers, and they understand the value of locking in a good rate. If you're writing a contract to purchase a home in the next few months, chances are you will be competing with a Millennial...and they don't mess around. They do their research, they write strong, reasonable offers, and when they find the home of their dreams they are determined to make it their own. (We totally own the generalizations here as our own experienced opinions, and we're standing behind them!)
2. Existing home sales will increase +8%: Existing home sales will grow as more buyers enter the market motivated by a clear belief that both rates and prices will continue to rise. The increase in home sales year-over-year will be similar to 2012, but this time the composition of properties sold will be more normal with minimal levels of distressed properties. While the majority of housing activity next year will be driven by baby boomers preparing for retirement, millennials will account for 65 percent of first-time home buyer sales in 2015.
Sounds good to us! But if you're looking for the deal-of-the-century fixer-upper bank-owned house with loads of potential....yeah, that ship has sailed. It's not 2010, y'all...if you are looking for a home in the Denver Metro area in 2015, you need to have an open mind and a quick trigger finger. Gone are the days of buyers browsing dozens of properties in their price range, taking time to sleep on it, and writing a low-ball offer that sellers are happy to counter or accept. If you're home shopping in the near-future, you'll need to make fast decisions, have a Realtor who has a team at the ready to show you available homes when they hit the market, and an aggressive offer strategy!
3. Home prices will gain +4-5%: Low inventory levels and demand driven by improved employment opportunities will push home prices up next year. While first-time home buyers have many economic factors working in their favor, increasing home prices will make it more difficult to get into high priced markets such as San Francisco and San Jose, Calif. As a result, first-time home buyer activity is expected to concentrate in markets with strong employment and affordability, such as Des Moines, Iowa; Atlanta and Houston.
Denver sort of falls in the middle of these two types of housing markets...our area is certainly lower-priced and more affordable than bigger cities like San Fran and NYC...but our inventory is low, our job market is hot, and the Denver Metro area is the fastest-growing market in the country. Our mantra? Get in while the getting is still good. It's a good idea to talk to a lender to find out how this expected increase in prices will effect your ability to purchase they type of home you're looking for!
4. Mortgage rates will end the year at 5%: Mortgage rates will increase in the middle of 2015, as the Federal Reserve increases its target rate by at least 50 basis points before the end of the year. Thirty year fixed rate mortgages will reach 5 percent by the end of 2015. One year adjustable rate mortgages (ARMs) will rise minimally. Lower ARM interest rates will influence an uptick in buyer interest for adjustable and hybrid mortgages. While still at historic lows, rate increases will affect housing affordability for first-timers trying to break into the housing market and will be another factor pushing them to less expensive locales.
We. Are. So. Spoiled. Interest rates have been hanging out at crazy low levels for several years now...and in 2014 they hit record lows. Now that they are expected to creep back up into the 5% range by the middle of 2015, it's time to take a good, hard look at how this might affect you. What will be the cost of waiting for you? Again, talk to a lender if you're not sure...and figure out a timeline that makes sense for you and your situation for making a move.
5. Home affordability will decrease 5-10%: Affordability will decline in 2015 by 5-10 percent, based on home price appreciation and increasing mortgage interest rates. This decline will be somewhat offset by increasing incomes. When considering historical norms, housing affordability will continue to remain strong next year.
This is the scary number. Is your income increasing by 10% this year? Will the other factors in your cost of living counter this decrease in home affordability? Even though we think that prices and demand will continue to increase in Denver, especially as housing starts are still relatively low....rental vacancy and pricing is increasing even faster, so taking a good look at your housing strategy now will probably be a good idea. Even if you are only planning to be in Denver for a couple of years, or you're not sure where your life/career will take you, investing in housing might be the safest bet.
Are there any factors holding back the housing market?
Yes, it's not all unicorns and rainbows...
1. Tight credit standards and limited mortgage availability: Despite historically low rates, many households were prevented from capitalizing on mortgage access because of overlays lenders added to qualification standards in order to limit put-back risk. A tight spread between approved and declined FICO Scores shut out nearly half of the potential population this year. As a result, mortgage credit availability did not improve in 2014.
2. Tight supply of inventory: While absolute inventories increased as the year progressed, supply did not outpace demand. Monthly supply of new homes and existing homes remained beneath normal levels, and the age of inventory was down year over year.
3. Depressed levels of first-time buyers: The share of first-time buyers fell to the lowest level in over twenty years according to the National Association of Realtors. "But the first-time buyer share is showing signs of modest improvement by the year-end," said Lawrence Yun, NAR Chief Economist. Federal policy actions, such as revised regulations for lenders and new low down-payment programs introduced in December are anticipated to have a positive impact in 2015.
4. Record levels of renters and ever-increasing rent prices: Continued declines in homeownership rates resulted in record numbers of renting households. Rent increases became an inflationary concern this year, and looking ahead, the pace of these increases are not slowing down.
5. Lack of recovery in homebuilding and low share of new home sales: Single-family starts barely increased in 2014 over 2013. New home sales remain far from normal share levels - typically near 16 percent, now instead around 9 percent. New home prices increased substantially again this year, revealing that higher priced product is limiting the demand.
So, to make this long story short...of course we think you should buy a house. That's what we do. But...we also want you to love us forever, so we would never steer you wrong. Give us a shout, let's talk about your situation and what makes the most sense for you, your goals, and your future.
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