It’s a new year and the housing market is definitely looking up. What exactly does that mean for real estate in 2015?
Mortgage Rates Will Increase
Have you thought about refinancing and still haven’t pulled the trigger for one reason or another? Now is the time as interest rates are predicted to increase. Although rates will remain reasonable, they could rise as much as a point. Freddie projects mortgage rates to average 4.6 percent and creep up to 5 percent by the end of 2015 due to an improving economy. “The one-year adjustable rate will likely rise less if much at all, and accordingly, we are likely to see a shift into more adjustable and hybrid mortgages over fixed,” said Jonathan Smoke, Realtor.com Chief Economist.
Millennials Will Buy their Nest
Millennials, ages 25-34, a generation bigger than the baby boomers, are about 65% of first-time homebuyers. With an improving job market, prospects are good for millennials as not as many will be living with their parents after college and will purchase homes. In addition, new programs may help millennials with lower down payments for first-time buyers to secure a fixed-rate mortgage with a 3% down payment. That being said, stringent credit qualifications and limited credit history will push them to buy in more affordable areas.
Credit Remains Key
According to Smoke, “If you just look at the distribution of credit scores, at least 10% of current homeowners with mortgages would not qualify for a new mortgage today.” In my blog, How Credit Scores Affect your Mortgage Rate it discusses how a low credit score or having no credit at all can impact your purchasing power. That reasonable mortgage rate will substantially increase without an excellent line of credit and may even your hinder the ability to receive a loan at all. “Opening up access to credit would be a game changer in the housing market, allowing 500,000-750,000 would-be buyers who are now cooling their heels to achieve the dream of homeownership,” said Smoke.
Increase in New Home Construction & Sales
According to Freddie Mac, homebuilding is expected to rise by 20% from 2014. Most of these homes will be starter or entry-level, meaning relatively simple in design, not a lot of bells and whistles, and low in cost. These homes will allow credit worthy millennials and other first time homebuyers the opportunity of homeownership. “As the labor market and broader economy continue to strengthen, we can expect the housing sector to gain momentum heading into next year, “says David Crowe, Chief Economist for the National Association of Home Builders.
Almost eight years ago the housing frenzy came to an end and foreclosures and short sales skyrocketed. This year will be the close of an era in which there are fewer foreclosures and short sales available. Realtor.com said foreclosure inventories were already down 30% by the end of 2014 and we should see a slightly greater decrease as they fall to normal levels.