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Economics

Top 10 housing trends to watch out for in 2015

2014 was a year of major recovery for housing, so will this improvement continue in 2015 or will challenges hold the sector back?

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new home builder

As 2014 comes to a close, and we look back over the trends of this past year, we look forward to the coming year with more rosy colored glasses than other recent years. Economists have remained conservative with their projections for years, but the economic chokehold on housing loosened this year, and it appears next year will be one of more prosperity for a hard hit sector.

Many believed 2014 would be the year of the great recovery, and it almost was, but not quite – challenges remain. The growing consensus is, however, that 2015 is most likely that year that housing will be healed, as the gains made this year will carry over into the next.

Below are the top housing trends seen in 2014 as observed by Realtor.com Chief Economist, Jonathan Smoke, and what we expect in 2015:

1. The economy

This year, the fundamentals of the economy improved, with jobs and the GDP up, and consumer confidence continuing to rise.

In 2015: Because of the foundation being strengthened in 2014, the stage has been set for one of the strongest years for housing seen since before the crash. Improvement was slight in 2013, increased in 2014, but the sector is vibrating with a sense of excitement for 2015 as a very positive year.

2. Mortgage rates

Mortgage rates remained historically low this year, despite many economists projecting that they would increase in 2014. Realtor.com reports that global weakness combined with European and Asian central banks kept our Federal Reserve from raising the Federal Fund Rate, keeping mortgage rates low.

In 2015: Smoke projects, and we agree, that mortgage rates will, in fact, increase in 2015, particularly in the middle of the year due to Federal Reserve actions to increase the target rate.

3. Home prices

After abnormally high spikes in home price appreciation levels in 2012 and 2013, they moderated in 2014 to match long-term historical performance.

In 2015: most agree that home price increases will continue, but at a moderated, healthy pace, most likely around four percent. The downside is that affordability will continue to diminish.

4. Foreclosures

Foreclosures and short sales dropped in 2014, as did inventories, which realtor.com says will be down 30 percent year over year at the close of this year.

In 2015: short sales are nearly a thing of the past, and many economists believe that foreclosure activity will begin to fall to pre-recession levels.

5. Investment activity

Realtor.com is calling this the year that ended major investors active in purchases, as a result in fewer distressed sales opportunities and higher home prices, as previously outlined. Large-scale investor purchase activity in the single-family market sector continued to decline.

In 2015: the boom is over, but this year’s activity has paved the path for more first time buyers to enter the market.

6. Tight lending

If you’ve read a story about housing in the last half decade, you’ve heard the repetitive drum beat about lending standards being too tight, which many believe is a necessary overreaction to the housing crash. Realtor.com notes, “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.”

In 2015: we will see a loosening of credit standards, but with a twist – counseling may be required to qualify for loans, as we’re already seeing with one new federal program. Creative lending will never go back to no-doc loans, but many analysts and trade groups have called lending too restrictive for years, and this could be the biggest change we see in 2015.

7. Inventory levels

Inventory levels remained tight, but not the “bidding war” tight seen nationally in 2013. Supply did not outpace demand, and realtor.com notes that monthly supply of new homes and existing homes remained beneath normal levels, and the age of inventory was down year over year.

In 2015: watch for inventory levels to remain tight, but not restrictively so. Home buyers will benefit from not having to make snap decisions, although the pressure will still be much higher than in post-crash years.

8. First time buyers

NAR reports that the share of first-time buyers fell to their lowest level in over 20 year, “But the first-time buyer share is showing signs of modest improvement by the year-end,” said Lawrence Yun, NAR Chief Economist.

In 2015: new regulations for lenders and new down-payment programs will actually allow first timers into the market, so watch for those levels to rise, but not dramatically.

9. Renters

Homeownership levels continue to dip, thus rentership has hit record numbers, despite rent increases, which realtor.com says became “an inflationary concern this year, and looking ahead, the pace of these increases are not slowing down.”

In 2015: as mentioned previously, more first time buyers will be able to enter the market, and combined with jobs numbers improving allowing Millennials to leave the nest, rents are set to remain high, but level out, as renewals decrease as a small segment of the population opt for homeownership as it becomes more attractive. Affordability will likely remain an issue, so we don’t expect the trend of renting to plummet this year.

10. New homes

Realtor.com reminds us that single-family starts “barely increased” this year or last, and new home sales have been very far off 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.

In 2015: land remains a challenge for builders, but as the economy recovers, labor and costs should become more reasonable, as will the lending available to builders. New home sales will likely remain below normal, but could potentially stabilize in 2015 as the rest of housing recovers.

In summary

“Overall, this year’s housing market showed steady advances over 2013 with significant improvement in key housing metrics, despite some remaining challenges,” said Jonathan Smoke, chief economist for realtor.com.

“Increases in job creation and gross domestic product (GDP) have had a significant impact on consumer confidence and home buyer demand,” Smoke added. “Paired with historically low interest rates, these factors kept properties moving quickly with median time on market at approximately 90 days. Unfortunately, the low number of homes for sale and stringent lending standards prevented a normal number of first time home buyers from closing on their first home in 2014.”

On all accounts, housing will continue improving, and we expect to see an increasing pace of improvement in the coming year and headlines to tout more positive news than we’ve seen in the last seven years.

The American Genius' real estate section is honest, up to the minute real estate industry news crafted for industry practitioners - we cut through the pay-to-play news fluff to bring you what's happening behind closed doors, what's meaningful to your practice, and what to expect in the future. Consider us your competitive advantage.

Economics

Why it’s about to get more expensive to get a mortgage

(FINANCE) Borrowing money is getting more expensive, especially for those looking to get a mortgage. But why?

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bonds and mortgages

Although there have been some blips, bonds have grown substantially in value since the 1980s. They’ve performed extremely well for a number of reasons, not least of which is the big slowdown in inflation over that time period.

The result, for investors, has been that anything “bond-lik,e” i.e. capable of paying a regular income – like a high-dividend stock or even a property like your home – has shot up in value. A reversal of bond prices would mean less support for such investments.

That’s what the economy is currently experiencing. According to Financial Times, American worker wage growth is hastening the sell-off of bonds by the US government, which is decreasing the overall price of bonds. As bond prices go down, the interest rates that they offer new investors go up. That rate jumped to 2.85 percent last Friday, the highest level since 2014.

Since the rates at which banks lend their money are largely based on the interest rates offered by bonds, regular folks looking to take out a mortgage or a loan are facing higher costs.

How does this work?

If we’re talkin’ bond prices, we’re talkin’ yield. When the price of a bond goes up, the yield of that bond goes down! Let’s say you’re getting paid $5 each year. If you pay $50 for that right, then you’re making a 10% “yield” (5/50 = 10%). But if you pay $100 for that right, then you’re making a 5% “yield” (5/100 = 5%).

It’s the same thing with the price of a bond because the amount a bond investor gets paid (usually) is fixed. And so, when the bond goes up in value, the “yield” goes down – and vice versa.

For realtors, its important to help clients shop for the best rates to improve their confidence in this market. Leveraging the right online and local financing resources can help potential buyers get the best deal. Explaining broader market context is also critical. Historically, a three percent interest rate is still very low.

According to Investopedia, mortgage rates averaged 7.81% in 1996 and 10.19% in 1986. Instilling confidence with information will put buyers and sellers in the right place to make moves.

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Economics

How does this soft jobs report impact the housing market?

(REAL ESTATE NEWS) When we see a soft jobs report, does that hurt or help the housing market? We talk to two economists about it.

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In a year of political uncertainty, the release of any jobs report is polarizing. Political figures and armchair policy wonks will read into the data as they wish, but not housing economists.

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That’s who we look to in these times, because we all know that jobs is the cure-all for a recovering economy, but payroll growth slumped in September as the U.S. Labor Department reports that employers added only 156,000 jobs.

This fell short of the 172,000 originally projected by economists surveyed by Bloomberg.

Hidden positives in the report

Dr. Ralph McLaughlin, Chief Economist at Trulia said, “While the September jobs report came in below expectations, the continued addition of jobs to the US economy will help buoy demand for homes, both on the for-sale and rental side of the market.”

He observed another positive hidden in the Labor Department result. “In addition, wage growth kicked up again, which will help bolster the savings of first-time homebuyers trying to scrape together a downpayment.”

Real estate remains unchanged

“Given no major surprise in the data, the national outlook for real estate market remains essentially unchanged, with home sales expected to squeak out slight gains in 2016 and 2017 while commercial building vacancy rates should continue to fall,” said NAR Chief Economist, Dr. Lawrence Yun.

Yun adds that “we should note that men have been underperforming as 68.4% of adults have jobs, down from historic norm of around 75%. Meanwhile, 55.8% of women have jobs, roughly matching the historic norms.”

Pointing out that the data is being “digested” through the perspective of the upcoming election, Dr. Yun notes that, “among men, those with a college degree 72% of adults are working while only 54% of those with only a high school degree are working.”

Dr. Yun observes, “There will surely be a big divergent voting patterns among men versus women and among those with college education and those without in November.”

#jobsVhousing

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Economics

Mortgage companies hiring time travelers to uncover missing documents?

(MORTGAGE NEWS) – Mortgage companies are hiring for an interesting new position that may speak to their role in the economic crash of 2008.

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During the Great Recession of 2008, it’s been estimated that around seven million Americans lost their home. Many of the homes that went into foreclosure did so because people lost their jobs, and just gave up on their home. In some, people got kicked out based on false documentation, faulty paperwork or just downright illegal mortgage servicing. Numerous lawsuits have been filed and won by homeowners who were wrongfully evicted.

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In California, in Yvanova v. New Century Mortgage Corporation, the California Supreme Court ruled that plaintiffs held the right to contest foreclosures when documentation (in this case, a mortgage transfer that was allegedly void) was not handled correctly. The Court didn’t determine validity of the document in Yvanova’s case, just that she had the right to contest the foreclosure.

New jobs in mortgage documentation

According to David Dayen, who wrote Chain of Title, this phenomenon has brought new jobs to the market. Career Builder lists a job for a “Default Breach Specialist” posted by a recruiting firm in Jacksonville, Florida. The primary characteristics for this position:

“The Default Breach Specialist responsibilities include ensuring all breach letters are issued as required by investors, insurers and/or State Law.  Responsible for ordering title, reviewing title and all security documents to identify missing assignments needed to complete the chain of title prior to foreclosure referral.”

Seeking time travelers

According to Dayen, all the assignments of mortgage should have been prepared and recorded at the time of the sale or transfer. He questions why any mortgage company would need to order these documents.

In Yvanova’s case, it’s alleged that the mortgage was not converted into the trust in a legal fashion. In many of the cases involving foreclosure, third parties were hired to produce the paperwork that conveyed a mortgage into the trust. Dayen alleges that many of these companies “mocked up” documentation.

Although it is possible that the mortgage company is simply looking for someone to make sure everything is in the case file, it’s also possible (some would say highly likely) that some documents may never be found because they don’t exist.

The failure to follow the law as it pertains to property records is so bad that companies are now hiring chain of title specialists to manage the problem. This does not put the real estate industry in the best light.

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