Good News for 2015: It Will Be Easier to Buy or Sell a Home

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.