Many experts predict a continuing housing recovery in 2015, despite stagnant builder confidence and slowing price gains. While this year could still be a great time for you to buy a new home or invest in real estate, a look at the big picture never hurts. Consider these potential events cited by CNNMoney as today’s biggest threats to the housing market.
Institutional Investors May Sell Off Properties
Institutional investors—organizations that pool and invest large sums of money—have purchased hundreds of thousands of properties as rentals. However, now that home price increases are slowing, it is possible that they will begin cashing out their gains. There are some indications that this is already beginning to happen. According to the National Association of Realtors, the number of institutional investors dropped to a four-year low in the third quarter of 2014.
Foreign Buyers May Lose Interest in U.S. Properties
As the dollar has grown stronger, investing in U.S. housing has become more expensive for foreign buyers. According to the National Association of Realtors, real estate purchases by European and Russian buyers have already started to lag. In addition, according to the California Association of Realtors, the number of sales to foreign buyers within the state has fallen 25 percent.
American Incomes Are Not Increasing Fast Enough
The unemployment rate has continued to fall, dropping to 5.6 percent in December according to the Bureau of Labor Statistics. However, wages are not increasing fast enough to keep pace with market prices. The Society for Human Resource Management, the nation’s largest group of human resource professionals, has forecast a base salary increase of 3 percent for U.S. workers in 2015. This disappointing figure may make purchasing a home less affordable for buyers—particularly in higher priced areas.
Some Lenders Are Still Reluctant to Lend
While both Fannie Mae and Freddie Mac recently eased the lending standards on the mortgages they buy, reducing the required minimum down payment to 3 percent, some experts believe other lenders are still taking it too hard on potential buyers. Evidence of this includes demands for near perfect credit and large down payments. This can increase borrowing challenges for a variety of buyers including those with short-lived credit histories, former homeowners who had to short sale a previous property, or anyone with a heavy student loan debt load.
Mortgage Rates Could Increase Sharply
The general consensus among financial experts is that The Federal Reserve Bank will increase the prime rate—the benchmark rate against which many other interest rates are calculated—sometime in 2015. However, no one really knows how soon The Fed will do so, or by how much. If rates climb high enough, housing affordability in high-priced markets could plummet.
While the U.S. housing market could face a few bumps in the road in 2015, it still makes sense to explore your options if you have been considering a new home purchase or investment. I would love to talk you through an analysis of your local market, personal financial situation and buying goals.
