From a recent article in Money Magazine
Dec. 26, 2014
Home price gains are slowing, credit is thawing, and more first-time buyers may be hitting the real estate market in 2015.
Better balance in the housing sector is “in” next year, as far as trends go. That’s likely to put buyers and sellers on a more even footing.
To be sure, like politics, all real estate is local. Some sellers have stayed on the sidelines in recent years, investing in improvements amid a dearth of buyers. For others, low inventory and rising home prices meant a bidding-war bonanza.Some prospective sellers sound especially bullish on housing. In a recent Trulia survey, the biggest chunk of consumers, 36%, said they expect next year to be much or a little better than 2014 for selling a home.
The landscape next year’s sellers are likely to encounter depends a lot on where they live. But here are a few broad trends to bear in mind.
Bringing Back Buyers
Mortgage credit is becoming more available as lenders scale back requirements. The average FICO score on a conventional purchase loan in October was 754, according to Ellie Mae. That’s a five-point drop from last year’s average. (You can checkyour credit scores for free on Credit.com to see where you stand.)
Tough credit and underwriting requirements have been a huge hurdle for many would-be buyers. So is liquidity, but there’s also good news on that front: Fannie Mae and Freddie Mac recently rolled out a mortgage option that allows for a 3% down payment. These two government-sponsored behemoths purchase about two-thirds of all new mortgages.
If conventional lenders get on board, the new low-down-payment option could pull more first-time buyers into the marketplace. During a time of tight credit and stagnant wages, this crucial group of buyers has been all but absent from the housing picture.
“If access to credit improves, we could see substantially larger numbers of young buyers in the market,” Jonathan Smoke, chief economist for Realtor.com, noted in his 2015 housing forecast. “However, given a high dependency on financial qualifications, this activity will be skewed to geographic areas with higher affordability, such as the Midwest and South.”
Affordability May Be a Concern
Lower credit and down-payment thresholds are causes for optimism. But rising home values and mortgage rates will impact affordability, especially in costlier housing markets. Realtor.com’s Smoke expects affordability to decline 5-10% next year.
Job and wage growth will play a big role in shaping homebuying activity. Gains in both may offset the price and rate increases likely on the horizon.
Sellers in more affordable housing markets, especially those with improving economies, are likely to see more buyers.
Home Prices & Inventory
Home price growth is slowing after years of big gains. Zillow’s chief economist predicts home values will rise about 3% next year, about half the current clip. More listings are hitting the market each month, too, although inventories are still tight in some places and price ranges.
Housing inventory nationwide jumped nearly 16% in October year over year, according to Zillow.
The combination of cooling prices and more inventory means the balance of power is tilting back toward buyers in some markets.
“Sellers have had their day in the sun for several years in a row now,” Zillow’s economist, Stan Humphries, told U.S. News & World Report. “It’s time to get back to a balanced market and for buyers to have their day.”