Predictions For the Home Front
In Park Hill, Inventory Remains Low, Demand is High
Welcome to 2015! As we move into the New Year, what can we Park Hillionaires expect from the real estate and mortgage fronts? Well, if you like last year then you will be thrilled since forecasts predict more of the same. If you weren’t paying attention, what follows are the different forces at work behind interest rates, home values and home sales.
2015 Mortgage Rate Predictions
According to Freddie Mac’s weekly mortgage rate survey, in 2014 rates declined significantly. The 30-year rate began the year in the mid 4.00 percent range, and finished the year around 3.75 percent, dropping nearly .25 percent. This drop was the second-best annual improvement since 2003.
The surprise was that this drop in rates was not expected. Why then did it happen?
In 2013 mortgage rates had run higher at the end of the year. The Federal Reserve was ending its explicit support for low mortgage rates and the U.S. economy was showing signs of a rebound. Very simply put, the Fed keeps mortgage rates low by buying lots of bonds from the people who lend you money. If the lenders didn’t have this customer they would have to pay higher rates on the bonds they sell in order to attract other buyers.
However, demand for mortgage-backed bonds unexpectedly grew. What happened was that even as the Fed support declined the slack in buying was taken up by other investors who were spooked by a couple of factors. One was the unexpected weakness in the economies of emerging markets. These are the governments or corporations in the world’s developing nations. The second was the heightening of geopolitical tensions around the world.
Another contributing factor to keeping rates down was the continued level of low inflation produced by a US economy that has flattened out.
The majority view is that without a clear shift in the trend of economic data, which could take months or quarters to take shape, it seems unrealistic that we see any significant rise in interest rates for 2015. Most predictions call for 30 year mortgage rates to stay between 4 and 4.5 percent.
The crystal ball used by the housing seers forecast a similar scenario for 2015, with housing values appreciating at a healthy – if not quite so robust – pace.
In 2014, home values increased at an 8 percent or better clip for our neighborhood. More of the same is expected for 2015, as inventory remains low and demand high for our neck of the woods.
Ever the optimistic crew we in the real estate business see hopeful signs for a healthier and more balanced market in 2015. We have all heard the reports of the quandary people find themselves in when the market has not enough supply of housing inventory. It’s a great time to sell, but what can I buy? Relief seems to be on its way in the guise of a couple of encouraging trends.
One is that the dramatic increase in property values have now brought many people out of a negative equity position in their homes. Negative equity is when the loan was worth more than the house, often is referred to as being “underwater” or “upside down” on their mortgage.
In Colorado, only 5 percent of the home mortgages have negative equity, half the national negative equity rate of 10.3 percent, according to a national report released by CoreLogic. People who could not sell their homes or were unwilling to go through a short sale can now enter the market again.
Foreclosures are down, especially here in Denver with foreclosure activity in 2014 down 29.3 percent from 2013 in Colorado. Experts see us close to or at the bottom of the crisis and some feel that signs indicate that lenders are gearing up for a spring cleaning of deferred distress in the first half of 2015 in some local markets adding to the supply of homes on the market.
One thing is for certain, if you own a home in our neighborhood you are in as enviable a position as anywhere in the good ol’ USA.
Neil Funsch has been a mortgage broker for 18 years, the last five in Park Hill. He can be reached at 303-229-2684 or neil.funsch@gmail.com.