February 2015

What’s the Buzz?
OK, so by now pretty much everyone has heard how 2015 is supposed to be a (relative) banner year for real estate—especially in terms of the number of sales.  And with increased demand, prices are expected to rise, as well.  The logic is that long-awaited improvements in economic fundamentals, notably employment growth among millennials, will fuel significant increases in home sales and housing starts.  In fact, many industry experts are predicting a nationwide average increase of between 5 and 9 percent in home sales, and up to a 14 percent spike in new housing starts. The combination of mortgage rates still hovering near historic lows, and the threat of rates jumping to 5 percent or more by year-end doesn’t hurt that scenario any! Throw in the fact that rental rates continue to rise, then factor in the many “boomerang” buyers re-entering the market, and you can see why this should be a very good year for real estate!

Did It Make Sense to Wait?
Many potential buyers have been sitting on the sidelines, waiting… for something. Some believe prices have increased too quickly—thus creating another “bubble”, while others have waited for interest rates to come down. The average 30 year fixed rate in January 2014 was more than 4.5%. For a $250,000 home your monthly mortgage payment with principal and interest would have been $1,271.17.

Even though interest rates have dropped below 4% and are now hovering around 3.7%, home prices appreciated by 4.8 percent over the same time according to the Home Price Expectation Survey. So that $250,000 home appreciated by $12,000 and now costs $262,000.  The most recent report by Freddie Mac reports the average 30-year fixed rate is currently 3.73%.  With that in mind, some might say, “Waiting a year made total sense, I’m saving $60 a month.” And they’d be right—over the course of the year they saved $729.36. But they completely missed out on an increase in equity of $12,000!

Mortgage Rates
Mortgage interest rates have dropped substantially below projections, and many are wondering why. One major factor in the decline in interest rates could well be the drop in crude oil prices. Lower oil prices mean a lower inflation rate, which pushes down mortgage rates. The decline in oil prices is generally positive to households by way of the gas savings and lower mortgage payments, and that savings will boost consumer spending in other areas.

No one really knows how long oil prices will continue to support low mortgage rates, but adding hundreds of billions of dollars to consumer spending could start to have a “counter effect” on rates as the economy continues to strengthen. If businesses start hiring again, and wages increase — that’s when the level of all interest rates in the U.S. would increase.

Bottom Line: The low interest rates we are currently experiencing are not going to stay around forever. Freddie Mac, Fannie Mae, NAR and the Mortgage Bankers Association all agree that interest rates will increase to between 4.3-5.4% by the end of 2015.

In this edition:

  • ‘More Robust’ Year for Housing Lies Ahead in 2015
  • Housing Barometer Indicates Market is Moving Closer to ‘Back to Normal’ Levels
  • Big Year for Housing in 2015 Based on Recent Government Actions
  • 3 Reasons Housing is Looking Up in 2015
  • Phoenix housing market may see supply shortage
  • Mortgage Rates

‘More Robust’ Year for Housing Lies Ahead in 2015
In the wake of the National Association of Home Builders’ (NAHB) latest confidence index, builders convened in Las Vegas this week to discuss housing trends over the last few months and what they expect to see in 2015. Top economists representing housing organizations and businesses projected a healthier year for housing ahead, citing a recovering labor market, low interest rates, and improvements in credit availability for borrowers. Click here for complete article.

Housing Barometer Indicates Market is Moving Closer to ‘Back to Normal’ Levels
While housing recovery has generally been uneven for the last few years, the housing market experienced substantial growth in the fourth quarter of 2014 for all five indicators of Trulia’s Q4 2014 Housing Barometer. Click here for complete article.

Big Year for Housing in 2015 Based on Recent Government Actions
With 2015 less than two weeks underway, Fitch Ratings is the latest forecaster predicting great things for housing in the coming year. However, unlike other commentators, whose projections were based on encouraging market trends, the ratings agency says it’s a combination of recent government actions that reinforces its view. Click here for complete article.

3 Reasons Housing is Looking Up in 2015
As 2015 rolls forward, there are several economic indicators that the housing market may have a break-out year. Let’s review the top three. Click here for complete article.

Phoenix Housing Market May See Supply Shortage
Valley real estate experts believe the housing market in Phoenix could have a supply and demand issue in the near future. With down payments and interest rates dropping on certain Fannie Mae and Freddie Mac conventional loans, the housing market is set to see more homebuyers in the near future. Click here for complete article.

Recession-Proof Your Portfolio With Rental Properties
For investors who want cash-flow, the recession has been a fine time to invest in real estate. Why? Some real bargains have come up. First time home buying rates went down. More people rented. Hipster’s bottom line? Buy and hold investing is a great way to recession-proof your portfolio. Click here for complete article.

Mortgage Rates
U.S. averages as of February 1, 2015:
30 yr. fixed:       3.82%
15 yr. fixed:       2.96%
5/1 ARM:         3.23%
30 yr. jumbo:     4.36%
View current rates 

The Kennedy Group is pleased to provide this monthly newsletter.  Our business is built around the concept of educating and providing the personal service that our clients have come to depend upon. Each month we scour through dozens of industry articles, charts, and statistics – selecting those we feel offer the most accurate snapshot of the real estate market, both locally and nationally.

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