2014 marked the best year in economic recovery since the recession, according to the Bureau of Labor Statistics. This means that there may be more opportunities for home ownership in 2015. The economic improvement indicates that the housing market is expected to see gradual growth in home prices and inventory, however increasing mortgage rates and strict lending standards may still put home ownership on hold for some. Real estate experts share their 2015 housing market predictions below, and offer insight on the current market, where it’s headed, and how it will impact buyers and sellers in the coming year.
1. Strict lending standards and rising interest rates may prevent Millennial homebuyers
Despite a steadily growing economy, mortgage qualifications aren’t expected to relax in the upcoming year. While interest rates hovered around 4% in 2014, chief economists at Freddie Mac anticipate rates to surpass 5% by the end of 2015 due to the rebounding economy. Millennials, aged 18 to 24, may struggle to qualify for traditional financing due to lack of established credit and down payment resources.
Bennie Waller, professor of finance and real estate at Longwood University, adds, “Compounding the difficulties for buyers is the rapidly increasing student loan and credit debt debacle that looms over the economy. This will severely limit the purchasing ability for first-time homebuyers and low to mid-income homebuyers.”
2. Demand for inventory will keep home prices competitive
Low inventory has played a key role in the competitive sellers’ real estate market that has defined the past four years. While inventory is expected to remain low in 2015, the economic recovery is likely to result in more eligible buyers and drive home prices in many markets. This could lead to bidding wars for potential homebuyers.
3. Millennials aged 25 – 34 will enter the real estate industry as first-time homebuyers
In past years, Millennials have favored renting to access the high-end amenities that accompany rental properties. In 2015, a larger percentage of Millennials will approach their late twenties and may look to homeownership for stability. Residential developers can count on Millennial homebuyers for years to come, as the 18 – 34 age bracket surpassed the Baby Boomer generation in size for the first time, according to recent U.S. Census statistics.
4. Baby Boomers will search for second homes to increase time with family
On the other side of the generational spectrum, many Baby Boomers are house hunting for second homes to accommodate growing families. “Many homebuyers in their forties, fifties and sixties are buying properties where they can vacation with their children and grandchildren,” said David Burden, CEO of Timbers’ Resorts.
Jerry James, principal of Edward R. James Companies, agrees, “As folks get older, remaining connected to their families is a motivator. Many empty-nesters are focused on spending free time with their grandchildren, so finding a place where they can easily come and go is a big factor, in addition to location.”
5. A need for convenience will lead homebuyers to urban markets
Convenience is driving more homebuyers toward communities with easy accessibility to transit and urban centers. “Homebuyers are finding common ground when it comes to the benefits of transit-oriented developments (residential developments near commercial areas and public transport),” said David Strosberg, president and managing principal of Morningside Group. “They love the urban feel of living near shopping, dining, and transportation.”
With this, 2015 will signify a comeback for urban condominium sales. “As buyer confidence grows, condominium sales and prices will see an uptick in 2015,” said David Wolf, president of Related Realty. “Condominium inventory is at its lowest level since 1997, so this spells a great opportunity for developers.”
6. Functionality will be a key focus in customizing home design
Homebuyers will continue to seek customized options in home design in 2015, but the focus will shift to function over flashy features. “The new trend is to splurge on high-impact, functional features rather than aesthetic finishes,” said Brian Brunhofer, president of Meritus Homes. “We are seeing more long-term convenience enhancements, like home technology systems.”
Fred Wilson, co-principal of architecture firm Morgante Wilson Architects, concurs. “Consumers already know what areas of the home need the most attention and investment,” said Wilson. A top request for homeowners? A super pantry. “Homebuyers want a state-of-the-art workroom adjacent to the kitchen, complete with appliances, counter space and storage that minimizes congestion in the kitchen.”
7. Luxury properties will head to auction in lieu of traditional listing process
In the past, many considered the auction block a last-ditch effort to sell a home. However, more luxury property owners are using this method for its efficiency. “Luxury home sellers have really come to embrace the auction process,” said Diana Peterson, president of AuctionWorks. “It’s very efficient, gives them a definitive sale date and lets them plan for the disposition of their property accordingly.”
Auctions can also function as a strategic marketing tool for real estate agents. “An auction can create a surge of excitement and anticipation — much more than a traditional real estate listing — which is exactly what high-end listings deserve,” said Peterson.
Planning a move in the year ahead? Learn how the 2015 real estate forecast will impact the moving industry here.