Freddie Mac: 2015 Home Sales to Hit 2007 Levels

According to Freddie Mac’s latest U.S. Economic & Housing Market Outlook, U.S. home sales in 2015 will show increase to the numbers associated with a normal real estate market. Here is their projection:

“We are projecting a 4 percent rise in sales to 5.6 million, which would mark the highest level of annual sales since 2007.”

And their optimism was seconded by both the National Association of Realtors (NAR) and the Mortgage Bankers Association (MBA).

It seems that an improving economy and jobs market will mean a very healthy housing market.

Do You Fit the Description of the Typical First Time Homebuyer?

There are many people sitting on the sidelines trying to decide if they should purchase a home or sign a rental lease. Some might wonder if it makes sense to purchase a house before they are married and have a family. Others may think they are too young. And still others might think their current income would never enable them to qualify for a mortgage.

We want to share what the typical first time homebuyer actually looks like based on the National Association of REALTORS most recent Profile of Home Buyers & Sellers. Here are some interesting revelations on the first time buyer:

Bottom Line

You may not be much different than many people who have already purchased their first home.

Home Values Compared to the Peak of 2006-2007

There is no doubt that the housing market has recovered from the meltdown that occurred just a few short years ago. However, in some states home values still have not returned to the prices we saw in 2006 and 2007. Here is a breakdown showing where current prices are in each state as compared to peak prices.

Will Higher Interest Rates Kill HOME SALES?

The Mortgage Bankers Association, the National Association of Realtors, Fannie Maeand 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.”

Bottom Line

Even with mortgage rates increasing, home sales and home appreciation should be just fine in 2015.

Confusing Real Estate News? An Agent Can Help

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.

Bottom Line

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.

Later today, we will be hosting a webinar titled 3 Ways to Guarantee Success in 2015which will cover this issue in more depth. You can reserve your seat here.

Housing market poised for steady gains

San Diego County’s housing market should see stable price gains and increased demand as the economy continues to grow in 2015, according to a pair of real-estate forecasts released this week. 

The forecasts, by Realtor.com and Trulia, indicate the days of investor-led fixing and flipping that led to double digit annual price gains during the recovery from the Great Recession are over and won’t return. Instead, wage growth, employment, supply and demand will continue to push the market forward, with annual gains in prices at about 4 percent, about double inflation, said Jonathan Smoke, chief economist for Realtor.com. A lack of affordability will remain an issue despite some wage increases, Smoke said, in part because he expects interest rates to rise about 0.5 percent. 

“San Diego falls into a short list of markets where I would say demonstrably already that demand outpaces supply,” Smoke said. “That very tight supply condition puts it in a market that has next to zero chance of seeing prices decline.”

Jed Kolko, the chief economist for Trulia, noted that people expected interest rates to rise last year, and that never happened. He listed San Diego as one of the nation’s 10 markets to watch next year, with Fresno the only other California metropolitan area to make the list. Others making the positive list are Boston, Dallas, Nashville and New York.

“They have strong fundamentals for the housing market without the risk that prices look overvalued,” Kolko said. “These are the markets who are in that sweet spot where the conditions are ripe for a strong year, without much downside risk.”

Smoke said demand will increase as the millennial generation, of 19-to-35 year olds, continues to get older and moved toward starting a family. He said San Diego should see 5 percent household formation growth over the next five years, with construction activity increasing to help with some supply. Kolko said he also sees millennials moving out of their parents’ homes for the first time, but most are going to rent. Still, there’s not enough housing supply to match demand, with inventory in San Diego running a little more than two months, about half of what economists would like to see. 

Smoke and Kolko said higher lending standards and saving for a 20 percent downpayment are challenges facing millennials who want to buy. 

In October, the median price for a home sold in the county was $440,000, up 6.6 percent from a year earlier, CoreLogic DataQuick reports. The annual rate of appreciation on homes in the county has declined since peaking at 24.1 percent in June 2013, when foreclosure resales and fix-and-flip activity paced the market.

The Real Estate Market Has Turned The Corner

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.

Will an Increase in Interest Rates Crush Home Prices?

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.

Freddie Mac: Buy Sooner Rather than Later

In a recent video update on the housing market, Frank Nothaft, Freddie Mac’s chief economist, stated that with both mortgage interest rates and home prices projected to increase in 2015 buying now makes sense.

“If you are planning to buy a home in the next year, it’s better to do it sooner rather than later.”

Here are the latest mortgage interest rate projections from four major housing entities: Fannie Mae, Freddie Mac, the Mortgage Bankers Association (MBA) and the National Association of Realtors (NAR):

Thinking of Selling & Moving Up?

This advice isn’t limited to just the first-time buyer. If you are considering moving up to the home your family has always wanted, waiting also makes no sense.

Home Prices Continue to Rise

“Broad-based Slowdown for Home Prices”

That is a headline you might have seen over the past weekend. And though it is true, we must understand the story behind the headline. Case Shiller reports on the year-over-year difference in home values. Their latest report revealed that the rate of appreciation has slowed – not that prices are falling!! Here is exactly what they said:

“The 20-City Composite gained 4.9% year-over-year, compared to 5.6% in August.”

Prices are still up this month over last year’s values (4.9%) just not as much as they were last month (5.6%).

Home Prices are NOT Falling. 

As a matter of fact, the latest Home Price Expectation Survey by Pulsenomics (a survey of a nationwide panel of over one hundred economists, real estate experts and investment & market strategists) showed that home prices will continue to appreciate for the next several years.

Bottom Line

Both first time buyers and families thinking of moving-up to their dream home can be assured that their investment in their new home makes sense.