It may be a slow start for the real estate market in 2015, but spirits remain high among experts as the unemployment rate holds steady below six percent and the economy continues to strengthen.
According to the National Association of Realtors®, in January, existing home sales took a slight downturn, declining 4.9 percent to a seasonally adjusted annual rate of 4.82 million — their lowest rate since April 2014. However, sales still remain higher than in January 2014 when they were 4.62 million.
At the end of January 2015, 1.87 million existing homes were on the market, an increase from 1.85 million available at the end of December 2014, but still 0.5 percent lower than last year at this time when 1.9 million homes were on the market. The median existing home price continues to rise, however, averaging $199,600 at the end of January — a 6.2 percent increase from January 2014.
NAR Chief Economist Lawrence Yun remains optimistic despite the substandard start to 2015, noting “Although sales cooled in January, home prices continued solid year-over-year growth.” He adds, “The labor market and economy are markedly improved compared to a year ago, which supports stronger buyer demand.”
In other areas, foreclosures and short sales remained unchanged from December and accounted for 11 percent of sales in January. Single-family home sales dropped from 4.5 million in December to 4.27 million in January but remain well above sales from a year ago.
Homes averaged 69 days on the market in January, which is higher than the 66 days in December 2014 and 67 days a year ago. Even longer on the market were short sales, averaging 128 days in January while foreclosures held at 63 days. According to NAR, 30 percent of homes sold in January were on the market for less than one month.
A look at the commercial market shows that commercial real estate demand is on the rise as the U.S. economy and labor market gain ground, according to NAR. While growth continues in the United States, however, NAR believes the weakened global economy overseas might impact the forecast for commercial real estate, as the slow economic growth will widen the trade deficit.
“Sluggish overseas alongside a strengthening U.S. dollar will widen the trade deficit and slow economic growth potential,” stated Yun. “However, GDP is forecasted to come in around three percent in 2015 — the highest since the recession. Improvements in housing and commercial real estate market activity will measurably help economic growth.”
While mortgage rates remain lower than a year ago, fixed mortgage rates are on an uphill move. Freddie Mac reports February rates have been increasing among a stronger employment rate.
Thirty-year fixed-rate mortgages are coming in around 3.76 percent, lower than a year ago when they averaged 4.33 percent. And 15-year fixed-rate mortgages averaged 3.05 percent, slightly lower than their average a year ago at 3.35 percent.
Regardless of the slight increase, Freddie Mac Deputy Chief Economist Len Kiefer notes, “Despite the fact the yield curve has flattened, we remain optimistic about the course of the domestic U.S. economy over the next year. We also do not foresee a major turnaround in the global growth picture and therefore recent trends in foreign buying of long-term U.S. securities activity should continue. That means continued downward pressure on long-term interest rates here in the U.S. Even if the Federal Reserve begins raising short-term rates later this year, don’t expect to see long-term rates — including mortgage rates — increase much.”
In Other News
NAR President Chris Polychron applauded the Federal Aviation Administration’s recent proposed rule allowing the safe commercial use of unmanned aerial vehicles (UAVs), or drones, for the real estate industry. Polychron notes, “The proposed rules announced today for the commercial use of unmanned aerial vehicles are good news for property owners and Realtors® who desire to embrace cutting-edge technology to enhance the process of buying and selling real estate with images gathered by unmanned aerial vehicles.” Although the final rule has not been published, NAR says they’ll continue to educate their members on the safe and responsible uses of UAVs.
President Polychron and Realtors® also supported Secretary of the Department of Housing and Urban Development Julian Castro’s decision to achieve more affordable FHA-backed loans, stating the new policy “will help more first-time borrowers achieve homeownership without increasing the risk of mortgage defaults or of another taxpayer bailout.”
The new policy will lower the cost of FHA’s mortgage insurance premiums, saving future homeowners or current borrowers who refinance up to $900 annually. NAR is confident the premium reduction will bring in an additional 1.6–2.1 million renters and an additional 90–140 thousand home purchases annually.