By Ken Urman, Realtor
I
have decidedly good news for 2015. It will be easier to buy or sell a home. You
already know the national and local economies are improving. You also know the
job market is improving nationwide, as well as here in the
Seattle-Bellevue-Lake Washington area. These factors point to a general
strengthening of the ability of more people to afford to buy a home.
In turn, this is good
news as well for those who are ready to sell a home. These factors also point
to an end of the inventory shortage of available homes as homeowners become
more confident and see home prices continuing to rise. Together, these factors
will make it easier to buy or sell a home in 2015.
Improvements with regard to five critical factors are now
converging in a way that will make home ownership possible again for many
potential home buyers.
1. It will be easier to qualify for and get a
mortgage. Credit and underwriting requirements are being relaxed by
mortgage lenders. Much of this loosening of requirements is a direct response
to new guidelines from Fannie Mae and Freddie Mac in the last few months. These
two government-sponsored firms purchase about two-thirds of all new home loans.
Most economists and industry experts are in agreement that this clarification
will result in wider access to mortgage credit. The Urban Institute quantified
this expectation by estimating that a return to “normal” lending requirements
could mean that an additional 1.2 million home loans will be written each year.
In fact, the Federal Reserve reports a
loosening in lending requirements and terms for many types of loan categories.
This has occurred in response to a widespread increase in loan demand.
Specifically, this is apparent in credit score requirements and debt ratios. In
other words, lenders are making loans to people with lower credit scores and
higher levels of debt in for mortgage borrowers.
2. Mortgage lenders are requiring lower down
payments. Another guideline recently issued by Fannie Mae and Freddie Mac
allows mortgage lenders to write loans with just 3 percent down. This is a
significant step for potential buyers who can easily make the mortgage payments
each month, but have not been able to amass the 10 or 20 percent down payments
previously required. It will be particularly helpful for first-time home
buyers. To qualify for mortgage loans with the 3 percent down payment, buyers
must have a FICO score of at least 620 points and will be required to purchase
private mortgage insurance. Buyers who have not owned a home recently may also
be required to complete an educational program on home buying.
3. Home values can be expected to continue to
rise, but at a slower pace than during the last year. As subscribers to my
monthly newsletter are aware, some housing markets are “hotter” than others in
terms of the pace at which home prices have risen. Comparing sections of
Seattle, Bellevue and Mercer Island, for example, clearly shows that prices
have been slower to rise in some areas than in others. The same disparity can
also be seen when comparing King County to surrounding counties. According to
Freddie Mac’s index of home prices nationwide, prices increased by 10 percent
from September 2012 through September 2013. Yet over the last year, prices rose
only 5 percent. This index projects a nationwide increase of just 3 percent
during 2015. The Case-Schiller Index (more familiar to some) pointed to 5 .6
percent increase from July 2013 to July 2014 and predicts an increase of 5.7
percent from July 2014 to July 2015. This should help to persuade more
homeowners to list more properties. The additional inventory might push prices
down modestly in some places, although it other locations prices will remain
high.
4. Mortgage rates are expected to remain low
at least during the first half of 2015. Last week the average 30-year fixed
mortgage was at 3.98 percent. This rate reflects the lowest rate in the last 18
months. The long-term expectation from the economists at Freddie Mac is that
rates will rise gradually during the next 12 months, and will reach the
much-discussed 5 percent level in the fourth quarter of 2015. I remain
skeptical that the 5 percent level will not be reached until the fourth
quarter; it could happen in the third quarter. Yet, even at 5 percent, home
mortgage rates will remain significantly below historical averages.
5. The number of foreclosures will continue to
decline as a portion of total home inventory. According to CoreLogic, a
financial data firm, foreclosure inventory has declined for 31 months
consecutively. A smaller number of distressed properties supports real estate
values. The foreclosure crisis is expected to resolve and return to pre-crisis
levels early in 2015. A market that is not undercutting property values with
distressed properties at reduced prices restores the confidence of homeowners
that it is safe to sell with the expectation of pricing that represents the
true value of a property.
As we consider recent and anticipated changes surrounding
these five factors, 2015 will bring good news for potential home buyers (and
sellers, as well). A smaller number of distressed properties diluting the home
values of available inventory, relaxation of some of the requirements for loan
qualification, lower down payments, rising home values, and low mortgage rates
will make it much easier for most potential home buyers.
If you have been waiting for the right time to buy (or sell)
a home, 2015 may be your best opportunity. If you are considering selling,
please call me for a free market assessment of your home. If you agree that it
is the right time to buy, please call me to help you find the perfect home for
your needs. Remember, I’ll bring the coffee.
