Should you Buy, Sell Or Rent in 2015?
Should you buy, sell, rent or out right sit on the sidelines this year. Well, the chief economists from NAR, Freddie Mac, Realtor.com, Trulia and Zillow have all weighed in and there seems to be a general consensus that real estate in the USA is stabilizing, we are no longer in crisis recovery mode, house values as well as foreclosures have just about reached their pre-bust numbers, investors are stepping out of the market, and the USA economy is leveling off.
It is expected that 2015 will look very similar to 2014, with a slower gain in house prices due to an increase in housing inventory, a vigorous rental market, a strong demand for multifamily homes and limited new single family construction. Frank Nothaft, Freddie Mac’s chief economist says, “The good news for 2015 is that the U.S. economy appears well-poised to sustain about a 3 percent growth rate in 2015 — only the second year in the past decade with growth at that pace or better.” Noting the 20 cities Case-Schiller tracks nationally, prices are near their spring 2005 levels.
The Driving Economic Forces behind 2015?
So what is driving the real estate market in 2015? The Millenniums, age 34 and younger are a force to be reckoned with as well as the aging baby boomers. These young adults are the largest generation since the baby boomers and they have been sidelined by the USA economy for the past few years. Currently this generation has been, living at home with their parents, looking for a better job and paying off long term debt. (hence the student loan dilemma) These young adults are now getting married, having children and looking for housing. Studies show this generation want to buy homes and Jonathan Smoke, chief economist at realtor.com, argues that this generation will “drive two-thirds of household formations over the next five years.” Smoke thinks 2015 will mark the first year in which the Millennial generation’s presence in the housing market will be truly felt.
Sell My Home! The Baby Boomers want out!
On the contrary, older baby boomers will also have a profound effect on the 2015 real estate market. Baby Boomers are staying healthier longer and working into their late sixties. Many are living in empty homes, waiting for the first sign the real estate market has recovered. These baby boomers are not financially in a position to retire. Selling their larger homes and moving locally to condos, town-homes and taking advantage of the opportunity to downsize their expenses and be closer to work will be the trend. 2015 will be marked by big increase in housing inventory coupled with a slow and steady increase in prices.
Referencing S&P/Case-Schiller data and analyzing house price increases on an annual basis, prices have increased 6.4 % in 2014 which is down from 10.6 % in 2013. The bottom line is, housing prices will continue to increase but at a slower annual rate. The real estate market is normalizing. “During 2012 to 2014, the rebound effect drove the housing recovery…” says Jed Kolko, chief economist at Trulia. “Now, the rebound effect is fading.” Zillow predicts home prices will rise 2.5% in 2015; Realtor.com predicts an annual gain of 4%-5% in the coming year. Real estate lawyer Shari Olefson said “ 2015 will be the first year the whole nation recovered, with everyone getting back into the game…”.
Learning from Real Estate in 2014!
Looking back to real estate in 2014, the challenge was getting first time buyers (The Millenniums) into the market. A healthy real estate market is fueled by the first time buyer. The theory goes, as first time buyers enter the housing market (40 percent historic average) they push up the home sellers to larger more expensive homes. Lawrence Yun, NAR chief economist, points out that this past year the first time buyer had “…. challenges of tight credit, limited inventory, eroding affordability and high debt loads and this has limited the capacity of young people to own.” The biggest hurdle this generation has is saving the down payment to purchase. Many will choose to rent and thus 2015 will also bring a strong rental market with rents expected to rise 2-4% and push the demand for multi-family housing even higher.
Priming the Real Estate Market, 2015!
Understand the demographics for 2015, its no mystery that the Feds unveiled programs this past week, that authorized Fannie Mae and Freddie Mac to begin buying loans that have up to 97% loan-to-value ratios (LTV). Borrowers can now put down as little as 3% and banks have the security of the Government backing these loans. These loans coupled with a mortgage rate below 4% were two strategic moves by the Feds to stimulate the first time home buyer (the Millenniums) and coax them into the home buying market. Less up front cash is needed to purchase a home, you can refinance the principal without any penalties and the loans will have lower interest rates than those offered by FHA. According to Stan Humphries, Zillow’s Chief Economist “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.”
Take Comfort in Predictability
The US real estate market in 2015 will build on the solid foundation laid out in 2014. In 2014 low housing inventory, tight credit, bidding wars and intense competition from investors and all-cash buyers pushed housing prices up. In 2015 home sellers will need to step to the plate, stage their home for the market, price it properly and negotiate inspection issues. An all to welcomed missing aspect of the housing market in 2014. The coming year will bring a steady predictable market, a level playing field for both buyers and sellers, with very few surprises. The housing market will be driven more by local economic factors like job growth, incomes, household formation rather than by huge macro-economic factors such as national price crashes and recovery.
You can Expect rents to increase, investors should pursue that multifamily they have been contemplating and young home buyers starting families or moving out on their own for the first time need to take advantage of the window of opportunity that 2015 will present. A 3.89% interest rate has been stimulated by the Feds buying mortgage-backed securities this reduces the available supply of securities in the market, leading to an increase in their prices and a reduction in their yields. Lower yields on mortgage-backed securities reduced mortgage rates as well. So when the federal government decides to stop buying, mortgage rates can and will take a jump upwards. This means that 2015 is a fabulous time to buy.
Northern New Jersey Real Estate Market 2015
Drilling down the housing data to the Northern New Jersey Real Estate Market, one can see that overall housing prices are back to 2005 spring levels. 2014 generated the same number of sales contracts as 2013 primarily due to limited inventory. Limited inventory drove prices up significantly with many multiple bid situations. 2015 we will see much more housing inventory in Northern New Jersey with a lot more negotiating and many fair transactions. Our confidence in the market is back and NJ home sellers waiting to down size and being able to recoup their home investment will now surface.
Located in Northern New Jersey within a 30-60 minute commute to midtown Manhattan creates a unique housing environment consistently the last to drop in price during a market crash and amongst the first to recover during a housing rebound. Northern New Jersey is a fabulous real estate investment. Looking to buy or sell a Northern New Jersey home? contact Gerri Leventhal.
Additional Helpful References on Real Estate Predictions for 2015
Trulia Housing Forecast for 2015
Real Estate Market 2015 Forbes
Real Estate in 2015 CNBC
2015 Housing Market Predictions Fortune
Federal Reserve Bank of St. Louis
The above synopsis on the real estate market for 2015 was provided by Gerri Leventhal. An experience Northern New Jersey broker specializing in New Jersey homes for Sale within 30-60 minutes from Midtown Manhattan. Gerri can be reached via email at email@example.com or by phone at 973-489-7916.
Thinking of selling your home? I would love the chance to share my marketing expertise!
Gerri services Real Estate in the following Northern NJ towns: Bloomfield, Montclair, Glen Ridge, Little Falls, Cedar Grove, Verona, Essex Fells, Caldwell, North Caldwell, West Caldwell, Nutley, West Orange, Livingston, South Orange, Maplewood, Millburn, Summit, Chatham, Short Hills NJ.