Real Estate 2015 Predictions

Each year we take time to review what has happened during the year and to look forward to predict what is in store for real estate. Below are our predictions for 2015, based on data that was available during my research/review.

Predictions for 2015 Real Estate

1.     Median Home Prices- Home prices will continue to increase nationally by single digit numbers, between 5-6% whereas Washington State home prices will increase by 7%. Urban metro areas in high demand by millennials will see an increase in the double digits. Millennials will be purchasing their first homes this year with historic low interest rates and now FHA is lowering their cost of mortgage insurance.  Home prices in Oct. 2014 were up by 6.4% year-over-year (higher in high demand areas), after climbing 10.4% in 2013. There are still areas of very high demand and low inventory which will continue to push prices upward. However, many homeowners surveyed suggest they will sell their homes next year, increasing potential inventory and putting downward pressure on prices.

2.    Housing Inventory– Its a good thing that more homeowners are expected to sell their homes next year as we predict that more buyers will be entering the market for a home. Improved job markets bring more buyers into the market and according to the Bureau of Labor Statistics, nationally the unemployment rate stands at 5.8% for November, 2014- the lowest rate since July, 2008. Also, as stated in #1, low interest rates and lower FHA mortgage insurance will allow more Millennials to enter the market. Buyers who left the market in 2014 due to disappointment over lost offers will return. The bottom line is inventory will increase due to more sellers in the market, but we expect that buyers will be purchasing that inventory, so there won’t be big fluctuations either way.

3.     Housing Affordability– The Housing Opportunity Index measures the relationship between median home prices, median household incomes, and interest rates. An affordability index of 100 means a household earning the median household income would pay exactly 30% of their monthly income toward the principal and interest of their mortgage. Above 100 is more affordable, while below 100 is less affordable. The Index was 62.6 in the second quarter of 2014. The affordability rate will continue to decline as interest rates increase (predicted to increase this summer) and home prices increase.

4.    New Home Sales– There will continue to be a severe shortage of new homes in 2015. The US needs approximately 1.2 million – 1.5 million new homes each year to accommodate growing population and the demolition of decayed properties. The drastic decline in new construction from 2006-2012 had created a dramatic shortage in new construction. New construction in 2013 and 2014 was not high enough to make any kind of dent in the shortage of supply. We are looking at a 7-8 year deficit.

5. Pending Home Sales Index– The pending home sales index (PHSI) is a leading indicator of housing activity. the index measured at 100 in 2001 (when the index was developed to measure market activity) which is an indicator of “average contract activity”. As of October, the Index was at 104.1 which was 2.2% higher than a year ago . We predict the Pending Home Sales Index will hold steady in 2015 unless credit from national lending institutions is made more available.

*Why do we keep mentioning Millennials? A decade ago Baby Boomers made up the largest part of the population, but in 2014 the Census Bureau announced that the millennials are larger. Millennials are getting married and starting families and therefore, they need housing. More than two-thirds of household growth in the next five years is expected to come from millennials!!