With the housing market still in recovery from the recession, homeownership is not a commodity that everyone can afford. In fact, it is a luxury. Forbes writer, Erin Carlyle pointed out a housing forecast titled "What to Expect in the Second Half of 2015" that the homeownership rate in 2005 was 69.1 percent, while today, it’s 63.7 percent, the lowest level the nation has seen since 1993.
The forecast highlights that sellers are in an ideal market as the demand for housing is back, but for buyers, home prices are not very favorable and continue to rise. First-time buyers are especially deterred by the inflating price tags. Once you factor in increasing rents, slow wage growth, and high student loan debt, the younger and lower-earning end of the population have a tougher time breaking into the housing market.
“The housing market conveyer belt requires people to buy the homes,” said Stan Humphries, chief economist at Zillow. “If we can’t get people on the first rung the whole conveyer belt slows down.”
At the beginning of the year, Forbes surveyed experts and gained their predictions for the housing market and mapped out the rest of 2015.
In the largest 100 markets in the nation, it’s still cheaper to own than rent by 38 percent, says real estate data firm Trulia. Although real estate conditions vary across different metros, the rent versus buy tradeoff is not likely to shift until mortgage rates hit about 10.6 percent, Trulia predicts.
The improving jobs market is another reason for increased housing demand, Forbes reported. Last year, the nation gained three million jobs and this year another two million are expected, says Doug Duncan, chief economist at Fannie Mae. Household formation also increased for the past two quarters, meaning that younger people are entering the housing market.
“The pickup in jobs is resulting in some increase in real incomes, so the demand side is strengthening faster than the supply side,” Duncan said.
Forbes said that another issue in 2015 the low real estate inventory levels.
“Despite the fact that investors have mostly left the market (since the great deals of the recession are now gone), regular people are still competing for too few homes,” Carlyle said. “One key reason: developers simply aren’t building enough new houses.”
Another issue that Forbes pointed out is that builders are placing their focus on higher-end homes. Normally, new homes sell for about $25,000 more than previously-owned ones, while today, home are selling for about $75,000 more. The forecast also noted that low and negative equity is preventing people from selling their homes
Zillow’s Humphries added, “One out of three homeowners with a mortgage are locked out of trading their homes.” According to Zillow, approximately 15 percent of homes are underwater while another 18 percent have less than 20 percent equity in their homes.
Forbes advises that when looking to purchase a home, it is a good idea to already have your offer letter in hand because homes sell quickly. “Over one-third of homes sell in two weeks or less in the markets we track,” says Nela Richardson, chief economist at Redfin.
The National Association of Realtors (NAR) reported that existing properties sold within 39 days in April on average, meanwhile, six percent of homes sold in April were on the market less than a month.
In the first part of 2014, home prices were up between 10 percent and 13 percent year-over-year each month. But by the end of 2014 they had stabilized to an annual gain of 5.8 percent, NAR reports. Experts that Forbes spoke with predict projected gains ranging from 3 percent to 8 percent for this year.
“I think prices will continue rising, possibly at rates higher than anticipated,” said Selma Hepp, Trulia’s chief economist. “I think we are looking more at 7 percent to 8 percent.”
Lastly, Forbes projects that mortgage rates will hit between 4 and 5 percent by the end of the year. ”Economists have been forecasting a rise in mortgage interest rates for so long now that it’s almost hard to take them seriously, Carlyle said. “But at some point the Fed will act.”