After the slowest fall real estate market in at least four years, some are predicting that 2015 will be even slower. Since 2005, the biggest year for overall home sales occurred in 2013, with just over 71,000 homes sold in Massachusetts. Before that, the biggest year was 2005 with 81,000 homes sold. We feel very strongly that 2015 will be the biggest year in 10 years, and here are 9 reasons why:
Watch Anthony discuss the 2015 Housing Market with Kathryn Hauser on WBZ Channel 4 :
1. Interest Rates
Interest rates began going up in May 2013 and continued to increase for about a year, which slowed down home sales. Many people thought rates would continue to rise and would even get as high as 5%, especially since the Federal Reserve stopped its bond buying program. That didn’t happen! In September 2014 as the stock market dipped, rates began going back down and are currently at their lowest level in almost two years. This past November and December as the stock market recovered from the dip and reached new highs, rates stayed down mostly due to oil prices. If oil prices stay low, rates should stay down as well. As of today, the average rate for a 30 year fixed is 3.86%, much lower than it was a year ago, when it was 4.43%.
2. Lending is Finally Loosening
After the housing crash, mortgage companies, mortgage insurance companies, and government sponsored enterprises (Fannie Mae and Freddie Mac) tightened up their guidelines and raised fees for good reason. The problem was that they overtightened, and the increased fees and stricter guidelines slowed the housing recovery. After five straight years lenders have finally agreed to loosen up. The most significant example of these changes is that Fannie and Freddie are now offering 3% down mortgages. This is great news— especially for first time buyers who often struggle to come up with a large down payment. Another example is that as of January 7, FHA cut its annual mortgage insurance premium fees on loans it insures, reducing the rate from 1.35% to 0.85%. This reduction on average will amount to a $900 decrease in the annual mortgage payment for first-time home buyers. Although FHA has offered a 3.5% down payment option before, up until this change it was much more expensive to get an FHA loan because of upfront premiums and the high annual mortgage insurance premium. Being able to buy with one of these low down payment options will be bring more buyers to the market to take advantage of them.
3. Home Equity Has Risen
Since 2011 prices in Massachusetts and New Hampshire have come up about 20%. This increase in home values works wonders for homeowners’ equity positions, and enables more people to list their homes and trade up or trade down. Millions of homeowners have been unable to sell and buy a bigger home or even sell and buy a smaller home due to a lack of equity. As a result this has created a major home sales logjam all over the country. With improved equity for many homeowners, this logjam is finally beginning to work its way out.
4. Stock Market
The stock market’s recent highs really improve people’s feelings about both money and the overall economy. Buyer activity in August, September, and October was unusually low. In fact, other than the winter, it was the slowest period in the real estate market in over two years, and the slowest fall in at least four years. November home sales were down 3% in Massachusetts and were down over 6% nationally which is a direct result of the lack of buyer demand in early fall. It is no coincidence that the stock market had about a 10% correction at the same time. All signs point to the stock market at least maintaining where it is at and most likely continuing to improve. If this happens, it will help the real estate market.
This winter has been very mild so far. Last year at this time it had already been freezing cold and snowing for over a month. The polar vortex had us in its grips all winter long and it badly hurt the entire economy. First quarter GDP was down 3%! Last winter’s deep freeze delayed many sellers listing their homes which ended up getting the year off to a very late start. The last time we had a mild winter in 2012 into 2013 the real estate market got an early start and 2013 ended up being the biggest year for real estate sales since 2005! If this mild weather keeps up it will really help boost the real estate market.
6. Homeowners Realistic Again
From late 2012 all through 2013 and until around August 2014, the market was improving. Sellers saw bidding wars, prices rising, and a return to a sellers’ market. Then by September 2014 the market slowdown became evident. Many sellers put their homes on the market, yet many listed at prices that were too high. Inventory swelled in the fall to its highest level in two years. Buyers were happy to see more homes to choose from, but they felt too many were overpriced. In fact, the number one complaint from buyers nationally was that there were too many overpriced homes. This fall slow down frustrated many sellers, many of whom took their homes off the market. Some sellers will keep their homes off for a few years to wait for prices to improve more, but many home sellers will relist in the spring. The ones that do will likely be more realistic with their prices, which will get buyers to step up.
7. Pent Up Buyer Demand
A slow fall with fewer buyers buying homes has created pent-up demand. Historically, when there is a slowdown in the market, it is usually followed by a racing market with buyers out in droves. All signs point to this happening in a big way this winter and spring.
8. Gas Prices
One thing about lower gas prices they affect everyone and put more money in people’s pockets! Many experts think they will go even lower, and no one is predicting that they will go up anytime soon due to oversupply. This is welcome news which will help the real estate market, because anytime people have more money in their pockets they feel better about buying homes. In addition this could be a great thing for suburbs like the metro west because buyers are more comfortable having a commute when gas prices are lower.
9. Overall Economy
From the stock market to the unemployment rate, to GDP growth, to monthly jobs numbers and signs of strong wage growth coming, it’s clear that the entire economy has really improved and there are no signs of it slowing down. Look at Boston as an example. There has been no time in recent history that there have been so many cranes in the sky and so many upcoming projects planned. Things are taking off and we are poised for another major boom in the years to come. I’m confident these 9 reasons will add up to the strongest housing market we’ve seen in 10 years!
*Source MLS Property Information