When 2014 came to a close, the National Association of Realtors reported sales of pre-owned homes fell short from 2013 totals. Yet, new home sales increase by 1.8%. Even though price gains slowed for previously owned homes, builder confidence remained high for the last 2 quarters of 2014.
Why are builders so optimistic with such unclear signals? Simply the data between pre-owned and new construction are showing a housing market that is shifting from a rapid recovery into a more stable market. Here are the 10 expectations of home builders for 2015 for this new stable market:
1. Builders Shift to more Affordable Homes
During the recovery, home builders switched their model to building fewer homes then selling those homes at a more expensive listing price. This was mostly due to the cost of land being out of reach to many home builders. Now that the recovery is over and land is more obtainable, home builders are going to try and push past the average sales mark of 450,000 per year to 500,000 in 2015. To do this they are going to need to sell more homes at a less expensive price. Having lenders willing to give out home loans to those with credit scores below 640 will help home builders reach this goal. The average home buyer will be able to afford the product the builder is offering and, in return, allow builders to meet their goal.
2. Say Good Bye to Investors, Hello Us Normal Folk
Great news for those looking to purchase a home in 2015 they actually plan on living in. The home buying process is going to get much easier for those looking to buy their own homes as investors leave the market and lenders make it easier to be approved for a home loan. While inventory stays low, it becomes harder to find a cheap bargain on home sales. This makes the investors and cash buyers back out of the market. Creating a healthy real estate that benefits both seller and buyers.
3. Interest Rates will Rise…?
The Mortgage Bankers’ Association predicts that interest rates will increase by 5% by the end of 2015. Yet in 2014, we heard the same prediction and at the end of the year the average rate for a conventional 30-year, fixed-rate mortgage was only at 3.93%.
4. A Slow Growth in Home Price
There was a slow growth in 2014 when it came to home price increase and this trend is to remain the same in 2015. Unlike 2013, where we saw a 10.8% year-over-year price increase due to high inventory and investors, 2015 will bring a slow release of homes for sale and the exit of many investors. This new market will take away any dramatic increase in the average home price and will bring it to a nice slow and steady upward pace.
5. Affordability will Decrease
While a growth in home price may be slow, incomes will increase at an even slower pace. According to Realtor.com home affordability will decrease up to 10% in 2015 and with homes currently just undervalued at 3%, there is not much room before homes will be overvalued, making homes less affordable for those seeking to buy.
6. Millennials – The Next Generation of Homebuyers
Millennials (35 years in age or under) will surpass Gen X (those 35-50 years old) and will become the largest group of homebuyers by the end of 2015. Millennials have been delaying purchasing a home since this generation is known to wait longer then Gen X to get married and have children. While these two key factors are now approaching their desires, the decision to buy a home is becoming their main focus.
7. Rent Increases
In 2015 while Millennial will plan to buy a home within the next 5 years, they will need to save up for a down payment, making them look to renting until they can afford to purchase a new home. This will increase rent prices as Millenial’s dominate the renting market. In fact, it is forecasted that rent will rise 3.5% in 2015. However, this may push some of those Millennials to become home buyers. “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,” says Stan Humphries, chief economist at Zillow. The trend of increased rent will also increase the demand for more developments of condos and townhomes.
8. Multifamily will be in Demand
It’s predicted that more people are going to try and sell their homes in 2015. If this trend develops, it will flood the market with pre-owned homes and will make the low inventory of new homes available spike in price. This will push builders to meet the demand of Millennials by building multifamily housing (a more affordable option for new home buyers). Last year we saw a boom in multifamily development and it looks like 2015 will continue in this trend.
9. Foreclosure will Drop
In 2014, each passing month saw a dip from the previous year-over-year average in foreclosures. The trend is at a steady pace and we plan to see foreclosures at pre-disaster level within 2015.
10. The Essentials
In 2015, the real estate market will be driven by economic essentials: incomes, job growth and household growth. Gone are the days when homebuyers will be concerned about national economics and will now be more focused on their present family/personal economic status.