There are benefits to homeownership — added security, having a place where your family can grow up and call “home,” building toward your net worth and having a stake in the community.
Homeowners have historically remained in their homes an average of six to seven years. However, due to our most recent economy — underwater home prices and mortgages that were vastly upside down for many years — that time frame increased to 10 years in 2014.
In a recent blog post, National Association of Realtors (NAR) Chief Economist Lawrence Yun noted, “One other factor for homes that is less relevant for auto sales is the lock-in effect of low interest rates. Mortgage rates have been unimaginably low and homeowners like it. They do not want to give that up to buy the next home. That is understandable. Will 2015, therefore, be a breakout year for home sellers?”
He compared auto sales and the length of holding on to a car longer as some similar sign that the economy might still be holding people back. Yet, rates are down, and people will still move closer to work and school to keep that “older model car” from being on the road as much if they can.
In my recent piece, I noted that as compared to five years ago, rates are still considerably lower. I had a client recently tell me, for example, that she was able to refinance the house she purchased just a year ago already and push payments down considerably.
For the first time in years, we saw in 2013-2014 the pendulum swing back from a hardcore buyer’s market, which had a flood of distressed inventory and swelled the housing market to where we are now. Today’s market is where we find ourselves wanting to “will” builders to build more homes faster because of a lack of inventory on the market related to home sales.
NAR believes 2015 could be the year those homeowners move out and move up. According to this infographic from NAR, many would-be sellers have stayed put. Those who have stayed put in the past because neighborhood sales wouldn’t support a move, or they are nervous about leaving their current low-interest-rate mortgage, have now seen the spike in the value of their homes they have been waiting for to come to fruition. Now that home values have risen 25 percent over the past three years, on average, pent-up sellers are in a better position to put their place on the market.
Looking at our current market just year over year, for example, we see the number of homes sold up 6.94 percent, though residential inventory was up only 2.05 percent at 3.79 months of supply.
Average residential sales price year over year through February 2015 gained 10.93 percent. In our market, the median residential sales price in February 2011 was $90,000. Today it is at $162,500. Once again, I think this is very much attributable to the lack of about 40 percent of distressed sales that dominated our market and existed four years ago but which doesn’t today.
After reviewing NAR’s infographic as to what might occur in 2015, my personal beliefs from what I see are that new construction apparently keeps coming back.
We have seen this, however, occur at a more paced and less breakneck way than during the boom years before the “Great Recession.” People still, however, have to relocate for work and buy their first home when they get a job and establish credit. This year in our market we see that many who could not move before, due to reasons already noted above, are now moving closer to work to cut down on commutes, buying larger homes because of a growing family or to be nearer better schools.
All the reasons for why people do sell their homes have not gone away; they just got put on hold in many areas of the market. Now we are seeing them cashing in on equity in many segments, and in early 2015 making some moves. It is still early, however, in the year. Although the first quarter was extraordinary in terms of the number of home sales, many are still getting homes ready to list for spring selling season. I think overall this should be a breakout year for housing.
Hank Bailey is an associate broker with Re/Max Legends and a Realtor for more than a decade who provides buyer’s agent representation and seller listing services related to residential real estate.