Chinese Version2015 has arrived, and with it comes what many believe to be an expected return to harmony within the real estate markets. Though the market may be considered enigmatic even to experts, there is an undeniably favorable attitude in the air about what transformations this new-year may bring. So if you are considering taking the home owner plunge, jumping into real estate investing this year, or are looking for what 2015 may have in store, reflect on these three predictions.
1.) Upsurge in Homebuilding
In 2015 homebuilding is projected to rise by 20% from last year. “This is mostly due to significant pent-up demand and steady job and economic growth that will allow trade-up buyers who have delayed home purchases due to job insecurity to enter the marketplace,” said NAHB Chief Economist David Crowe.
The increase in construction will likely present itself in the form of less-expensive, single-family housing on a larger scale. According to a survey of building professionals done by NAHB, newly constructed single-family homes will get smaller, have more green energy-efficient features, and incorporate more smart technology features.
2.) Eventual Rising Mortgage Rates
The final weeks of 2014 brought about a slight rise in mortgage rates, with the 30-year fixed rate mortgage averaging 3.87%. Despite this end of year rise, it still clocks below the overall 2014 average, which was 4.17%. According to Jonathan Smoke, Chief Economist at realtor.com, this rise will continue throughout 2015, and by years end 30-year fixed rate will reach 5%.
There are a couple of key factors in the predicted eventual rise in rates. First is the improving economy, which can cause investors to concern themselves with inflation and create a higher demand for money lending. Secondly, The Federal Reserve has stated that it will increase the federal funds rate. This increase affects lenders’ borrowing costs. “If it is more expensive for banks to borrow, they will pass that expense on to their customers,” says Brett Sinnott at CMG Mortgage Group. The mitigating factor is political unrest in the world and ‘flight to safety’ by many foreign investors who opt for US Treasuries in times of uncertainty. This flight is holding down interest rates due to foreign buying.
3.) Presence & Affect of Millennials
2015 brings about a very meaningful time period for millennials (individuals born between 1981-2000). For the first time in a decade, baby boomers have been overtaken as the largest portion of the American population, with 23 year olds now coming in as the biggest segment. With this younger generation growing older and moving into a time period traditionally associated with starting families, they may begin considering purchasing homes of their own and many of them have already begun.
Last summer millennials made up 30% of homebuyers, and according to Jonathan Smoke, they “make up around 65% of first-time home buyers”. The market is only just beginning to feel the impact of this generation, and it is estimated two-thirds of household growth in the next five years is expected to come from millennials. It remains to be seen what portion of millennials follow their parents and move to the suburbs versus stay in urban areas closer to employment and lifestyle amenities.