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January 2015… it’s a time to revel in anticipation of new opportunities. While some of us may say goodbye to 2014 with hesitation, others are more than ready to close the door if last year turned out to be a challenging one. No matter what our individual situations, looking ahead, we can feel positive about the coming year and embrace what awaits us.
It appears that 2015 may be the break-away year when the economy will have finally gathered enough momentum to break out of the uneven recovery trends of the past few years. The post-recession growth we have experienced will be even more apparent as the year goes on. Here’s why:
The unemployment rate continues to decrease and will soon be at the levels we were experiencing before the Great Recession:
The number of jobs continues to grow and strengthen:
Most importantly, we have reached a point where there is pressure for income growth:
Positive wage growth is a key factor, one that has lagged behind the first two. Because wage growth has been essentially stagnant since the end of the recession, many consumers have experienced a decrease in net income. Now, the improving job market and lower unemployment rate have gained enough momentum to force wages upward. This, together with the unexpected significant drop in energy prices and consistent deleveraging over the past years, has revived consumer confidence to its highest level since before the recession.
The real estate market
What does this mean for the real estate market?
After the dramatic boom of 2005 and 2006, the market hit bottom in 2011. We saw a “mini boom” of pent-up demand in 2012 and 2013. We began 2014 with terrible weather, and then as the year progressed, it seemed the pent-up demand that created the mini-boom was satisfied. But this lull was only temporary, and by the end of the year our real estate market once again experienced slow but steady growth. I’m optimistic we will see this trend continue. Like the economy, our real estate market has reached a point of consistent positive growth which will become more noticeable as the year goes by.
Will interest rates rise?
After taking an unexpected dip in the fall, interest rates are close to record lows. But they are almost certain to begin rising in 2015. It will probably be a gradual change, but it’s important to remember that lower mortgage interest rates translate into more buying power. Your Trident mortgage consultant can help you determine just how much you can buy at these lower rates.
What about home prices?
Residential real estate values in our market have flourished in the past ten years. In fact, they are up by almost 25%! This positive trend is especially reassuring given that the country’s worst financial downturn since the Great Depression also occurred during this time.
If we compare the value of residential housing to what happened in the stock market over the same period, it’s clear that real estate has proven to be a sound investment for those who take a long-term approach:
I have always believed in the wisdom of viewing our homes as a long-term investment. Our company and our communities have been built on countless satisfied homeowners doing just that, generation after generation. Such satisfaction reaches deeper and farther than any positive economic or market trend. The right home for you will always be more than an investment on paper. It will literally shelter and nurture your dreams.
A New Home For The New Year?
Advice for Buyers:
If buying a new home is on your list of New Year’s resolutions, our sales associates have told me that the best advice is this: if you see a home that meets your needs, act on it quickly, before another buyer does. It could take a while before you find something else you like. Prices are beginning to rise modestly in some areas, and with interest rates poised to rise, you won’t be able to buy as much home later as you could now.
Advice for Sellers:
If you need to sell your current home before purchasing a new one, this is a good time to list it for sale. I believe the first quarter of 2015 will see a lot of buyer activity as the threat of higher rates and improving consumer confidence drive more buyers into the market.
But sellers need to be aware that buyers are using their heads, not their hearts, when selecting a home. Fairly priced houses in good condition with no functional obsolescence will sell quickly. When you put your home on the market, consider it as your grand opening — everything must show at its best from the very start. Our sales associates report that nicely staged properties, priced correctly with no deferred maintenance, usually sell within a month. Often they receive multiple offers!
On the other hand, houses will remain on the market for a significant time if they are not in very good condition and if functional obsolescence hasn’t been factored into the price. Our experience shows us that the longer a house is listed, the less its eventual selling price will be. Your BHHS Fox & Roach sales associate can help you determine what needs to be done prior to listing your house, ensuring it is priced appropriately to sell quickly and for the maximum amount.
Lawrence F. Flick, IV
Chairman and Chief Executive Officer
Berkshire Hathaway HomeServices
Fox & Roach, Realtors® and The Trident Group
An Independent View
Joel L. Naroff, Ph.D. is the President and founder of Naroff Economic Advisors. He is a consultant to Berkshire Hathaway HomeServices Fox & Roach, REALTORS® and The Trident Group. A nationally recognized economic forecasting expert, Joel was awarded the Lawrence Klein Award for Blue Chip forecasting excellence and was the Bloomberg Business News top economic forecaster in 2008. In 2007, he received the National Association of Business Economists Outlook Award and was named the top economic forecaster by MSNBC in 2006.
The U.S. economy has broken out of its malaise.During the spring and summer, economic activity expanded by over 4% and four of the last five quarters have been at or above 3.5%. That, very simply, is strong growth. Every sector is picking up the pace. With improving business conditions have come solid job gains and a decline in the unemployment rate to 5.8%, the lowest since July 2008. The only negative remains wages, which continue to lag. Until that changes, the economy will not reach its true potential.
Looking toward 2015, two competing factors will be at work. Emerging labor shortages imply take home pay, consumer confidence and spending should all increase. But the better growth comes with a price:The Federal Reserve is likely to start raising interest rates by the middle of the year.
Potential rate increases hold the greatest uncertainty for the housing market. The region’s economy, though lagging, is coming around. The unemployment rate is now only slightly above the nation’s while job gains are kicking in. Home prices are also rising. With population and incomes growing, the outlook is for improving housing sales and prices.
The concern is how much and how quickly rates might rise. The Federal Reserve will not want to move too rapidly since the economic recovery is not complete. With Fed rate hikes, though, will also come increases in mortgage rates.
The days of sitting on the fence and not worrying about mortgage rates are coming to an end. If buyers stop procrastinating, however, sales would improve. That could encourage more owners to list their homes, expanding buyers’ choices and further improving the market.
For all these reasons, the economic and housing outlook, for both the nation and the region, is for better times ahead.
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