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The strengthening of the economy and the labor sector is prompting more young professionals to gradually return to the real estate market.
Since the housing turnaround started in 2012, many first-time home buyers have been shut out, with a poor labor market and low wages forcing many young professionals to move back with their parents or to rent. Last year, the number of first-time buyers plunged to a 30-year low, according to data from the National Association of REALTORS®.
“Credit tightness has been an issue for the housing market but demand weakness has been a bigger one,” says Douglas Duncan, chief economist at Fannie Mae. “The improving economy is going to put renters in a better place to buy.”
Duncan predicts a 6.3 percent jump in mortgage lending this year – that would follow a 9.6 percent drop in 2014. Growing confidence in the job market is the strongest indicator that home sales will improve, Duncan says.
With added jobs, more consumers see their wages growing too. Overall, consumers expect a 1.7 percent rise in their incomes this year, the highest increase since 2008, according to the Thomson Reuters consumer sentiment poll. Americans under the age of 45 years old are expecting the largest gains in incomes at 4.7 percent.
“Young renters have wanted to keep their living situations flexible because they didn’t know if they were going to have to move for a job,” Duncan says. “More of them are going to be willing to put down roots if they feel more confident in the labor market.”
The economy added more than 2.7 million jobs in 2014, the highest amount since 1999, according to data from the Bureau of Labor Statistics.
Household formation is a key measure of real estate demand. Household formation is expected to increase to 1.1 million this year, the highest in three years, according to IHS Global Instight Inc. forecasts.
If the first-time buyers aren’t in the market, the sellers can’t move up and buy their next houses. The real estate market needs an increase in entry-level demand for it to fully recover.
After a slowdown in the market last year, housing analysts and economists have high hopes for 2015. The real estate market is expected to build momentum across the board nest year, mostly because of a strengthening economy.
Here’s a recap of some of the real estate forecasts for 2015:
Millennial force: Younger professionals are having more luck in the job market, which is expected to help more of them jump into home ownership in the new year. Overall, employment is on the rise, but jobs for Millennials — particularly those aged 25 to 29 — has risen by 3 percent. That’s one percentage point above the nationwide rate. According to some forecasts, Millennials are expected to drive two-thirds of household formations over the next five years. The forecasted addition of 2.5 million jobs next year, as well as an increase in household formation, will likely drive more first-time home buyers into home ownership, according to realtor.com® projections.
Home prices stabilize: The double-digit price increases seen in 2013 have slowed, and more stable growth was the trend in 2014. As investors have retreated from the market, so have the rapid home prices in many markets. Home prices are expected to continue to edge up in 2015, with realtor.com® predicting a 4.5 percent gain. “After two years of abnormally high levels of home-price appreciation in 2012 and 2013, price increases moderated throughout 2014,” realtor.com® notes in its 2014 Housing Review. “We are now experiencing increases in home prices consistent with long-term historical performance.”
Mortgage rates rising: Interest rates the last few months have been dipping below 4 percent, lowering the borrowing costs of home buyers and refinancing home owners. However, don’t expect the low rates to stick around much longer. Mortgage rates are expected to rise next year. Freddie Mac projects mortgage rates will likely average 4.6 percent but inch up to 5 percent by the end of 2015.
Return of the 3 percent down payment: New programs are popping up to help more buyers break into home ownership with lower down payments. In early December, Freddie Mac and Fannie Mae announced conventional loan down-payment programs that will allow qualified first-time buyers to secure a fixed-rate mortgage with a 3 percent down payment. Prior to that, they needed at least 5 percent. Also there are many states as well as national programs, which offer grants that range from 1 to 5 percent to be used for a down payment or closing costs. These easing loan standards will allow more first-time buyers to enter the market.
Housing affordability declines: Affordability for homes, based on home-price appreciation and rising mortgage interest rates, will likely fall by 5 percent to 10 percent in 2015, according to realtor.com® forecasts. However, the decline in affordability could be offset by an increase in salaries next year for many households. “When considering historical norms, housing affordability will continue to remain strong next year,” realtor.com® notes in its report.
New-home sales rebound: Single-family new-home starts barely budged in 2014 compared to 2013, and new-home sales remain far from normal levels. But that could finally turn around in 2015. Sales of new homes are expected to rise 25 percent as single-family construction picks up traction in 2015. The National Association of REALTORS® projects single-family housing starts to rise to 820,000 in 2015, which is still below the 1 million historical average. In the latest new-home report, sales dipped 1.6 percent in November, but builders are remaining optimistic heading into the new year. As the labor market and broader economy continue to strengthen, we can expect the housing sector to gain momentum heading into next year.
Foreclosures recede to pre-recession levels: The number of foreclosures is expected to continue to fall in 2015, but expect them to still be elevated in some pockets across the country — particularly in judicial states where foreclosures must wind through the courts. Foreclosure filings have been on the decline for most of this year. From January through November, foreclosure filings fell about 172 percent compared to the same period one year prior, according to RealtyTrac data. Every month so far this year, we’ve been down from a year ago. The only uptick has been in foreclosure auctions, which are up 5 percent in November compared to one year earlier. Foreclosures will likely fall to pre-crisis levels in 2015.
Drop in oil prices will boost housing: Oil prices have plunged 45 percent since June, which could inadvertently provide a lift to the housing market. “Households in the U.S. spend more than $1,800 on energy-related costs annually, and 22 percent of that energy consumption is due to residential real estate,” according to CoreLogic’s 2015 Housing Outlook. So while the drop in oil prices typically has been linked to a reduction in driving-related expenses, it clearly also reduced energy-related expenses for residential real estate.
Rent rises to outpace home-value growth: Rents likely will continue to rise in the new year, and an increase in rental costs in 2015 could outpace annual home-price gains. Expect the rental market to remain a “landlord’s market” in 2015, with vacancy rates expected to stay below 5 percent in the new year, according to the National Association of REALTORS®. That should lead to demand pushing rents up even higher and keeping them above inflation. Apartment rents are projected to increase 4 percent in 2014 and 4.1 percent in 2015.
Stronger economy leads to greater confidence: A stronger economy will likely lead to more demand for housing in 2015. Overall, the economy finally appears to be gaining enough momentum to help provide the support that the housing market has needed for stronger recovery. The combination of stronger employment growth and especially Millennial job growth makes for solid footing for the real estate market. Moreover, the recent drop in oil prices cannot be overstated, because not only does it directly lower the transportation and home energy costs for households, but it also improves consumer confidence. And confident consumers are more likely to spend on big ticket items, which is sweet music to the ears of the real estate market.
Luxury sales have been soaring in recent months, outpacing the rest of the housing market. Deals on existing homes priced above $1 million climbed more than 16 percent in October compared to a year ago, according to National Association of REALTORS® housing data. The increase was bigger than that of any other price segment.
So what home features are these luxury buyers on the hunt for in their million-dollar–plus homes?
Here are some trends in home features and interior designs by looking at what’s in demand among the luxury buyers as well as what’s trending on luxury listings:
1. Luxury showers: Forget the Jacuzzi tub. The luxury buyer wants a luxurious shower. Since most people take more showers than baths, they want to have a stand-alone shower with multiple shower heads.
2. Fire pits by pools: Fire pits and gas fireplaces beside a pool are gaining in popularity. One quick way to warm up after a dip in the pool is to curl up next to a fire, and now that fire is just steps away.
3. Tasting rooms: Wine cellars are no longer a dark place in a basement or a closet. Home owners are placing more in living areas to host tastings with friends.
4. White kitchen cabinets: High-end kitchens with cabinets in white, gray, or black with matching or contrasting countertops are gaining in popularity among the luxury market. Meanwhile, natural-colored wood cabinets are on their way out.
5. Quartz countertops: Luxury properties are showing more quartz or sandstone in countertops and making granite countertops look more outdated. Quartz comes with a few benefits over granite; it is not as porous and therefore requires less maintenance, it is less prone to staining, and it is better able to withstand abuses during its lifetime.
6. Grand powder rooms: The powder room is getting a big makeover. These half-baths are getting more attention and fancier with elaborate mirrors, sinks, and lighting fixtures.
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First-time home buyers are expected to re-emerge in the new year after mostly staying out of the market in the aftermath of the housing crisis. That’s one of realtor.com®’s five top housing predictions for 2015.
“The residual financial effects of recession-driven job losses and subsequent unemployment have impeded Millennials’ entry into the home-owning market,” says Jonathan Smoke, chief economist for realtor.com®. “In 2015, increases in employment opportunities will empower younger buyers to return to the market and fuel the continued housing recovery. If access to credit improves, we could see substantially larger numbers of young buyers in the market. However, given a high dependency on financial qualifications, this activity will be skewed to geographic areas with higher affordability.”
Realtor.com®’s top five housing predictions for 2015 are:
Millennials to drive household formation. Households headed by Millennials are expected to see significant growth in 2015, particularly as the economy continues to make gains. Millennials are expected to drive two-thirds of household formations over the next five years, according to realtor.com®’s report. The forecasted addition of 2.5 million jobs next year, as well as an increase in household formation, are the two factors that realtor.com® points to in driving more first-time home buyers to the housing market.
Existing-home sales on the rise. Existing-home sales are projected to rise 8 percent year-over-year in 2015, as more buyers enter the market. Distressed properties will make up a smaller share of that growth, unlike in 2012, when a similar increase in existing-home sales was mostly driven by distressed properties.
Home prices will rise. Home prices are expected to continue to edge up in 2015, with realtor.com® forecasters predicting a 4.5 percent gain. “While first-time home buyers have many economic factors working in their favor, increasing home prices will make it more difficult to get into high-priced markets such as San Francisco and San Jose, Calif.,” realtor.com® notes in its report. “As a result, first-time home buyer activity is expected to concentrate in markets with strong employment and affordability.”
Mortgage rates to inch up to 5 percent. In the middle of 2015, mortgage rates are expected to increase as the Federal Reserve increases its target rate by at least 50 basis points before the end of the year. That will likely bring the 30-year fixed-rate mortgage to an average of 5 percent by the end of 2015. (It’s currently averaging 3.89 percent, according to Freddie Mac.) The 1-year adjustable-rate mortgage, on the other hand, is expected to rise more minimally. “Lower ARM interest rates will influence an uptick in buyer interest for adjustable and hybrid mortgages,” realtor.com® notes. “While still at historic lows, rate increases will affect housing affordability for first-timers trying to break into the housing market and will be another factor pushing them to less-expensive locales.”
Housing affordability will decline. Affordability for homes, based on home-price appreciation and rising mortgage interest rates, will likely fall by 5 to 10 percent in 2015. However, the decline in affordability likely will be offset by an increase in salaries next year for many households. “When considering historical norms, housing affordability will continue to remain strong next year,” realtor.com® notes.
It’s that time of year where home owners are busy decorating their exteriors with holiday lights and making them for festival for the holidays. Many landscape and lawn care companies support their clients year-round by providing holiday lighting in the winter. There are many safety concerns that home owners should take into consideration when putting up their own holiday lights, such as:
1. Inspect the lights and wires.
Inspect all lights, decorations and extension cords before using. Wires can become brittle.Throw lights away if there is exposed copper or broken sockets.
2. Don’t overload circuits and watch for electrical concerns.
Avoid connecting five or more strands end to end, otherwise the circuit can be overloaded. However, for many LEDs you can add more than five strands. Also, do not pull the strands too tight so they can reach an outlet. Other electrical concerns to watch for:
Tears in the wiring surface could result in electrocution.
When creating a lighting configuration on a lawn, make sure to keep connections out of depressions that could collect ground water.
Be sure to tape down extension cords if they cross walkways.
3. Read the labels carefully for outdoor use.
LED lights re more energy efficient and require less wattage than incandescent bulbs. But make sure the lights and extension cords are rated for indoor and outdoor use or specifically for outdoor use. Outdoor lights should be plugged into circuits protected by ground fault circuit interrupters (GFCIs.). Also, don’t replace light bulbs without unplugging the light strand or decoration.
4. Take caution on rooftops or elevated areas.
Ladders should be inspected – look for lose or missing screws, hinges, bolts and nuts before using and be sure they are stable and in good condition. Be sure to ground the ladder on a solid, even surface with no risk of sliding.
Don’t overreach when on ladders. When stringing lights, climb down and move the ladder often. Also, keep ladders as far as possible from electrical lines. Finally, if the roof is too steep or too high, don’t risk scaling it and endangering yourself. Hire a trained landscape professional that has the training to offer unique installation methods and premium quality products with the latest trends in decoration and technology.
5. Remove lights at the end of the holiday season. Over a period of time, lights exposed to the weather can have damage to the wires, lights, and sockets. Watch for any weather damage before you tow the lights away for next year.