Last year was good, but not great, for Louisville real estate. If you didn’t get to read our Year in Review post, feel free to check that out.
Today, we’re talking about 2015. When looking forward, it is wise to remember Patrick Henry’s quote, “I know of no way of judging the future but by the past.”
Thusly, here are some key factors that should influence Louisville real estate in 2015.
- Less disposable income slowing home sales
There are times when home purchasing decisions have little to do with the financial stability of the buyers. One example is a job transfer. Yet more often, consumers move from renting to a starter home; starter home to mid-level property; and so on up the real estate ladder. These decisions are predicated on the financial ability of buyers to afford a home more expensive than the one they currently own.Unemployment, according to recent reports, had been steadily declining until November saw it move higher. But that only paints part of the picture.
The explanation is complex, but the short version is this: Incomes are down in many markets. Prices and mortgage rates — which should be hugely attractive to large numbers of buyers — are simply off-limits because paychecks are smaller. Worse, we’re not selling a lot of homes to first-time buyers, and that could mean housing woes for years to come.
It’s simple really: When times are tight, buying a new home is one of the last things on people’s minds.
Therefore, despite amazing mortgage rates and more affordable housing options, homes sales will not dramatically increase until we see increased levels of disposable income. Our recent tax increases taxes aren’t helping either.
- Record-low interest rates won’t be around much longer
It doesn’t take a Nostradamus to see that mortgage rates can’t remain at these historically low levels forever. Sooner or later they’ll have to rise … and it looks like 2015 will be the year.The current administration has worked hard to keep rates as low as possible. It may be because they understand the value that a surging housing market creates for the larger economy.But I’m afraid this ship is sailing.
Many thought 2014 would be the year we saw rates rise. Now experts are naming it an “easy call.” Here’s a quote from Forbes.
Long-term mortgage rates get up to around 6 percent by the end of 2015, but that’s not deadly to the economy. The interest rate changes are not exogenous changes that will harm the economy; they are endogenous, the result of stronger economic growth and part of the automatic dampening that occurs as the economy expands.
It may not be “deadly” to the economy but it certainly won’t help. At the end of the day, it’ll mean less home sales activity and a higher percentage of income allocated towards housing costs.
- Lower mortgage insurance rate for FHA loans
A positive step is an upcoming rate reduction for FHA mortgage insurance. The rate that has been 1.35 percent is now moving to 0.85 percent. Typically, FHA loans are used by borrowers who don’t have the down payment funds necessary to secure a conventional loan. This move by the FHA to further reduce the mortgage insurance rate will give these borrowers a better opportunity to purchase a home.First-time home buyers, in particular, will benefit from this rate decrease. And this move comes at a time when first-time home buyers were accounting for a smaller and smaller percentage of all sales.
Suffice it to say, this improves the home buying opportunity for consumers all across the lower end of the price spectrum.
One factor I think will play heavily into whether 2015 can match last year, or even our banner year 2013, is inventory. There are currently fewer active listings available to buyers than Louisville seen in several years.
Will home owners who’ve been sitting on the sidelines for the past three years list their homes in 2015? The opportunity to sell is always greater with lessened competition. Just don’t make these 10 mistakes.
In a recent report, it looks like home buyers are ready with mortgage apps up 49 percent. Buyers? Check. Now, will the sellers step up to the plate in 2015?