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Is it all Doom and Gloom for the 2015 Housing Market?

Last week, we read (and shared) and article by Chicago Agent Magazine titled, “3 Important Trends to follow for the 2015 Housing Market.” I think the article raised some good points – namely, that the rise in home prices will slow down a bit and the rental market will continue to flourish. But, after reading this article, you may find yourself a bit depressed.

Don’t fret too much – we think the article is too negative. We are generally more optimistic, and here’s why:

Slowing price gains. While it is true that the prices in 2013 jumped up dramatically from 2012, the reality is that they had no place to go BUT 2015 housing marketup. Additionally, since nearly 25% of all homes were in a negative equity position not very long ago, fewer people were in a strong enough position to sell their home.  Therefore, demand quickly out-paced supply, causing the prices on those limited homes to go up in value. Will price gains continue to rise at this pace? Probably not, which is good for buyers.

Buyers are in a stronger position. Buyers are bouncing back and may be in a more favorable position in 2015. With the significant drop in fuel charges lately, disposable income is on the rise, even if salaries are not. As to affordability, interest rates are still at or near historic lows.  Additionally, as the rules dictating lender obligations and limitations become more defined, look for investors to regain confidence in real estate investment trusts, who supply so much of mortgage funding.  While we shouldn’t see the crazy no-doc and interest only products that contributed to the housing recession, we will see more flexibility and availability.

The rental market is strong for a number of reason. Yes, the rental market will remain strong as the housing market makes its gradual recovery. However, we cannot assume that the only reason multiple family dwellings are being built is to increase rental units.  While this is the case in some instances, in others it is a result of a changing demographic that needs less space, desires less upkeep and seeks more convenience to their work and/or infrastructure.  Multiple family dwellings does give the investors the added flexibility of renting or selling as the housing markets recover.

There’s more to the single family home story. The article notes that single family vacancy rate remains high.  But, there are a number of factors to this situation and the vacancies are predominantly in the resale market.  When overall home sale prices are increasing, this is an indication that there is more demand than supply for those homes selling.  However, homes that are not selling in a market where values are going up, can usually be attributed to a combination of factors, including location, price, condition and functional obsolescence.  Builders are not naive.  They study carefully where demand is not being met and do their best to meet that demand with housing that will sell quickly.  We will continue to see new construction, particularly in areas where the options available are limited, but demand is still growing.

Call me a Pollyanna but, from my vantage point, I feel 2015 will be a better year for buyers with more options to choose from and continued, favorable financing terms.  Further, as more sellers reach a financial position of equity, look for increased activity – those who were forced to stay put for the past several years will start to make adjustments that better suite their current living needs.

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