There is never a shortage of opinion or predictions about the housing market at the beginning of the year. 2015 is no exception, and I've been doing some reading to try and get a feel for market activity this year. Over the past two or three years the picture has been pretty muddy as to how home prices will move. In some areas they're climbing nicely, but in most they are rising on average at a pretty slow pace.
Three areas of interest all influence home prices and investor activity, and the current consensus for each doesn't really clarify anything about near term home buying activity. For investors, particularly rental property investors, draw your own conclusion from these three current market influencers.
Mortgage Rates Plunge
Mortgage rates have dropped a lot and quickly. The 30-year fixed mortgage interest rate is reported to be about 3.73%, down from 4.51% a year ago. The 15-year rate is down from 3.56% a year ago to 3.05%.
Economists over at Realtor.com tell us that mortgage rates haven't really been a major influence pulling buyers back into the market. They're more concerned about down payments and qualifying for a mortgage. The slow income gains over the past few years are dampening enthusiasm. Median household incomes are lower than 2007 levels after inflation, and the millennial generation is putting off buying homes.
If you're a glass half full person, these really low rates may lead you to believe some predictions that first time buyers will return to the market in droves this year. If you're on the other side, until the economy improves, more jobs are created, and incomes rise, there probably won't be much in the way of exciting home buying and appreciation news this year.
FHA to Lower Mortgage Insurance Premiums
The FHA has announced that the premium charged for mortgage insurance is to be lowered from 1.35% of a home's value to around 0.85%. That's a major reduction the agency justifies with rising reserves, predicted to rise from $7 billion to $10 billion annually. The FHA states they won't be needing another bailout due to improving finances.
This premium reduction is predicted to lower the annual premium for homeowners by around $900, and will hopefully enable a quarter million new buyers to purchase a home. The lower premium helps the buyer to qualify for the mortgage with lower income.
Adding this news to the lower mortgage rates could make the difference, luring the millennial generation back into the market for their first homes. However, not everyone can qualify for the FHA loan, though the low down payment requirements help a lot.
Rents Just Keep Rising
If you don't anticipate a buying binge, investing in rental property or wholesaling to those investors who do may continue to be profitable strategies in the coming year. Rental reports from Zillow.com are showing that Americans paid out more than $20 billion dollars in higher rent in 2014 over the previous year.
Nationally, the total number of renters is estimated to have grown 1.96% in 2014, with the median rent paid rising by 2.9%. Another interesting number is that rents have grown at twice the pace of income over the past 14 years. Demand is strong and supply isn't keeping up. Zillow chief economist Stan Humphries is quoted as saying "Next year, we expect rents to rise even faster than home values, meaning that another increase in total rent paid similar to that seen this year isn't out of the question. In fact, it's probable."
What's Your Call?
There are already plenty of analysts and economists predicting home prices and the health of the housing market, so I'll stay out of the fray. One thing I will predict is another great year for rental property owners; strong rents and cash flows should hold well.