Below are the headlines from three separate news releases issued over a one month period:
11/3/2014 – Millions of Potential New Households Waiting Out the Recovery
11/11/2014 – Experts: First-Time Homebuyers’ Weak Finances Holding Back Housing Market
And then, the contrarian view:
12/2/2014 – In 2015, Millennials Will Be Biggest Home Buying Group
It sure seems that the group that released the first two stories emphatically disagrees with the organization that published the last news release.
Amazingly, the same entity published all three reports. What?
It seems the company (a well-respected provider of housing information) reported that those forming new households are not looking to buy a home. They actually surveyed over one hundred housing experts who agreed. But 30 days later, they reported that millennials (most new households) will be the biggest group of home buyers this year. All in one month!!
All the headlines could actually be true. However, a consumer reading them might be misled. This is evidence of how difficult it is to actually understand the intricacies of today’s housing market. Even the experts can seem confused.
If you are thinking of either buying or selling a home, it is probably best to engage a local real estate professional to help you successfully navigate the ins-and-outs of today’s real estate transaction.
The Mortgage Bankers Association, the National Association of Realtors, Fannie Mae and Freddie Mac are each projecting mortgage interest rates to increase substantially over the next twelve months. What will that mean to the housing market in 2015?
Last week, we posted a graph showing that home prices appreciated each of the last four times mortgage interest rates dramatically increased. Today, we want to talk about the impact higher rates might have on the number of home sales.
The reason many experts are calling for a rise in rates is because they see a stabilizing economy. With the economy beginning to improve, they expect the employment situation to regain some ground lost during the recession, incomes to grow and for consumer confidence to improve.
What will that mean to home sales next year?
In its November 2014 U.S. Economic & Housing Market Outlook, Freddie Mac explains:
“While higher interest rates generally detract from housing activity, when they occur with strong job and income growth the net result can be increases in household formations, construction, and home sales. Our view for 2015 is exactly that, namely, income and job growth offset the negative effect of higher interest rates and translate into gains for the nation’s housing market.”
Even with mortgage rates increasing, home sales and home appreciation should be just fine in 2015.
Yesterday, HousingWire reported that both Fannie Mae and Freddie Mac formally announced their 3% down options on home purchases. Fannie Mae’s plan will be effective December 13, 2014 while the Freddie Mac plan will be available March 23, 2015. The HW article quotes FHFA Director Mel Watt:
“The new lending guidelines released today by Fannie Mae and Freddie Mac will enable creditworthy borrowers who can afford a mortgage, but lack the resources to pay a substantial down payment plus closing costs, to get a mortgage with 3% down. These underwriting guidelines provide a responsible approach to improving access to credit while ensuring safe and sound lending practices.”
This is great news to millions of purchasers that have been denied the opportunity to own their own home because of the almost impossible burden of saving for a 20% down payment.
Will these programs create future challenges?
Certain pundits fear that low down payment programs will create a wave of foreclosures down the road. Mr. Watt also addressed this concern:
“To mitigate risk, Fannie Mae and Freddie Mac will use their automated underwriting systems, which include compensating factors to evaluate a borrower’s creditworthiness. In addition, the new offerings will also include homeownership counseling, which improves borrower performance. FHFA will monitor the ongoing performance of these loans.”
We also recently addressed this issue.
Here are the direct links to the guidelines for each program:
Remember, as with any new program, there will be some confusion as it is unveiled. Contact a mortgage professional for a deeper understanding. Don’t have a mortgage person yet? Contact me for a referral.
CNBC’s Diana Olick recently reported that rents in the residential housing sector continued to rise in 2014. She interviewed Jed Kolko, Chief Economist at Trulia, who revealed:
“Rents are rising because of strong demand that supply hasn’t kept up with. Nearly all the new households are renters, and young people moving out of their parents’ homes will keep fueling rental demand.”
Where are rents headed in 2015?
The question now is where rents will be heading over the next twelve months. In a press release last week, Zillow chief economist Dr. Stan Humphries predicted residential rental prices will continue to climb in 2015:
“Home value appreciation will continue to cool down, from roughly 6 percent now to around 2.5 percent by the end of 2015. But rents will see no such slowdown, and will continue to grow around 3.5 percent annually throughout 2015. As renters’ costs keep going up, I expect the allure of fixed mortgage payments and a more stable housing market will entice many more otherwise content renters into the housing market.”
However, those potential buyers must make a decision quickly because, as Kolko explains:
“Paying more on rent makes it harder for would-be homebuyers to save for a down payment.”
Ryan Severino, a senior economist at Reis, in Olick’s article stated the obvious:
“Landlords should still be able to push asking rent increases on to their tenants.”
If you are thinking about buying a home in 2015 instead of continuing to rent, it probably makes sense.
There are some who are calling for a substantial drop in home prices should mortgage interest rates begin to rise rapidly. Intuitively that makes sense. The cost of a home is determined by the price of the home and the price of financing that home. If mortgage interest rates increase, less people will be able to buy. The logic says prices will fall if demand decreases.
However, history shows us that this has not been the case the last four times mortgage interest rates dramatically increased.
Here is a graph showing what actually did happen:
We will have to wait and see what happens as we move forward. But, a fall in prices should rates go up is not guaranteed.
As we finish 2014, it appears the real estate market is once again on solid footing and ready to advance forward over the next few years. The strength of the market can be viewed using two metrics: projected home values and projected house sales.
We recently reported that the Home Price Expectation Survey revealed future home values will continue to appreciate nicely. Today we want to look at projections on the number of home sales (existing and new construction) we will see over the next two years. We researched what the National Association of Realtors (NAR), Freddie Mac and the Mortgage Bankers’ Association (MBA) are projecting for the housing industry going forward.
Here is what we found:
All three entities see the number of home sales increasing in both 2015 and 2016. This is further proof the housing market is back.