I’ve polished-up my crystal ball to provide you with a forecast for the year ahead. 2015 is coming into sharper focus.
The news is mostly good as I look ahead to 2015. Seattle real estate values have recovered in almost every neighborhood, erasing the 30-plus-percent decrease as a result of the recession and mortgage crisis that followed. (Although, outside of the “hot” neighborhoods, values are still about 11 percent below the peak of July 2007.)
Most Seattle neighborhoods experienced frenzied bidding wars in 2014, due in part to the low supply of listings combined with pent-up buyer demand. Right now, there is approximately a two-month supply of listings; a normal market has a six-month supply of listings. In 2015, the tight supply should ease as more people list their homes now that values have recovered. With an increasing inventory of new listings, you can expect fewer bidding wars in the Seattle real estate market in 2015.
While some experts worry about home-price depreciation, Seattle will remain a bubble of relative prosperity in 2015. With a growing population, I don’t expect home prices will decrease next year.
In November, the region’s mid-to-high-priced neighborhoods saw sales increases, compared to a year earlier, while sales in the lower-priced neighborhoods declined. Sales of homes priced less than $300,000 fell 10.4 percent, while sales of homes priced more than $300,000 rose 8 percent, and sales of homes priced more than $700,000 increased 10.7 percent. There is an emerging trend of weaker sales in the lower price range, and robust sales in the upper-end. I expect this trend will continue in 2015.
The median home value in Seattle recently topped $464,000, before falling back to $440,000, according to Trulia.com. The Northwest Multiple Listing Service reports Seattle home prices increased 5.2 percent over one year ago. While Zillow shows home prices increased 5.5 percent in 2014, experts suggest we’ll see slightly less appreciation in 2015, perhaps 4 to 4.5 percent. Zillow is forecasting Seattle prices will rise just 3.9 percent in 2015, but I believe Zillow’s guesstimate may be too low. Price appreciation is slowing and could reverse course in some larger metro areas, but not in Seattle. Home-price appreciation will return to the normal range (3.5 to 5.5 percent) in 2015, and that’s good news.
Stepping back
Investors will continue to step back from the real estate market in 2015. The share of homes bought by investors declined to 15 percent in 2014, down from 19 percent in 2013, according to the National Association of Realtors. Rising home prices and rising interest rates will continue to discourage investors. Just 4 percent of the single-family houses sold in the third-quarter were flipped by investors, who buy distressed properties on the cheap, fix them up and put them back on the market, according to housing data firm RealtyTrac.
The National Association of Home Builders Index rose to 58 in November, up from 54 in October. That signals improving confidence among builders, which should result in more new homes built in 2015. The problem is, builders are adapting to the demand for larger homes with more costly features. Builders are building more luxury homes and fewer affordable homes. You can expect this trend to continue in 2015.
A total of 4,101 new and resale properties closed escrow in November in the Seattle-Tacoma-Bellevue Metro area. Seattle-area sales fell 19.4 percent from October and 3.1 percent from one year ago, according to San Diego-based DataQuick — that’s the lowest number of sales since November 2011.
Sales of existing (not new) single-family homes were 7.3 percent below the historical average for November, while condo sales were 36.8 percent above average. Sales of new homes were 33.6 percent below the November average.
I’m expecting 2015 real estate sales will continue to be below normal in 2015, although Seattle will be among a handful of cities that will outperform most other metro areas.
More access to home loans
New lending guidelines went into effect on Dec. 1. The new standards will open the door to hundreds of thousands of new mortgages, according to the Urban Land Institute, which compared current guidelines to the new standards. In 2015, borrowers with credit scores as low as 620 will qualify for a mortgage.
On Dec. 13, Fannie Mae and Freddie Mac unveiled their new 97-percent loan-to-value programs. This is a major step toward increasing access to home loans. This is a gift to Millennials, who have been unable to participate in the housing recovery because of huge student-loan debt, stagnant wages and the tougher lending guidelines.
In a recent survey, 61 percent of renters said they expect to rent for the next three years. With these new low-down payment mortgage options, more renters will be able to become homeowners in 2015.
Caution: Increased access to mortgage loans by Millennial buyers will affect the supply and demand for entry-level homes, putting upward pressure on homes priced less than $500,000.
With the Federal Reserve’s stimulus now ended, interest rates were initially forecast to rise to 5 percent or possibly higher in 2015. But top financial analysts now say interest rates may not rise in 2015 as predicted. Why? Cheap oil. Falling oil prices will keep interest rates low in 2015, according to new analysis by Bank of America/Merrill Lynch.
Most economists have forecast rising mortgage rates for next year, reaching 5 to 6 percent by December 2015; the steep drop in oil prices could change all that.
As Wall Street investors seek safe haven, they are moving into treasury bonds. There is a real possibility that, instead of rising, interest rates could decline to 3.2 to 3.5 percent and stay there. Low interest rates act as a stimulus on the real estate market, making buying a home more affordable. Interest rates in the range of 3 percent will boost the housing recovery through 2015. Consumers will be the beneficiaries of lower interest rates and lower prices at the pump, putting billions of dollars in the pockets of consumers.
Experts believe the glut of oil in global markets will act like a shot of adrenaline to the U.S. economy in 2015. Low gas prices, low interest rates and new 3-percent down-payment mortgages from Fannie Mae and Freddie Mac — it’s a win-win-win for consumers!
RAY AKERS is a licensed Realtor for Lake & Co. Real Estate in Seattle. Send your questions to ray@akerscargill.com or call (206) 722-4444.