2015: A Big Year for Buyers

For a host of reasons, 2015 is shaping up to be a good year for homebuyers—particularly younger and first-time buyers.

More inventory, rising rents and changing demographics will all contribute to more balance in the market between buyers and sellers next year, after years in which sellers were largely in the driver’s seat. Below are Zillow’s official predictions for real estate in 2015:
Growth in U.S. rents will outpace growth in home values by the end of the year.
Millennials will overtake Generation X as the largest group of homebuyers.
Builders will begin constructing more, less expensive homes.
Homebuyers will have more negotiating power in 2015.

How will all of this play out? Each prediction ties into the next. Read on for more.


Growth in Rents Will Outpace Home Values

After peaking at an annual pace of 8.3 percent in April, home value growth has slowed in every month since, falling to 6.4 percent by October. This pace is expected to continue to fall, to about 2.5 percent by the end of 2015, much more in line with historical growth rates in home values and a sign the for-sale market is continuing its march back to normal.

But at the same time growth in home values has been slowing, growth in rents has been accelerating. After dipping to a 2014-low of 2.3 percent annual growth in May, the pace of annual rental growth has risen or stayed flat in every month since, up to 3.5 percent in October. We expect rents to continue growing at that pace through 2015.

Rental demand is skyrocketing, thanks to a combination of younger workers staying in rental housing longer and families turning to the rental market after losing their homes to foreclosure during the recession. Builders are doing what they can to keep up, but it can take a while to get large multi-family projects off the ground, and demand is very hot right now.

So what does this mean for buyers? In a word, affordability. In the second-quarter, for-sale homes in the United States were roughly 30 percent less expensive (in terms of the share of income needed to afford the mortgage on a typical home) than they were in the pre-bubble years between 1985 and 2000. But rental homes were almost 20 percent more expensive. Continued growth in rents, combined with a slowdown in home value appreciation, will mean this trend will only continue into 2015.

For current renters that can afford a down payment and can find a home they can afford, buying will look increasingly attractive next year.


Millennials Will Overtake Gen X as the Largest Homebuying Age Group

Contrary to popular opinion, millennials (buyers aged 23 to 34) actually do want to buy homes. And current millennial renters are more optimistic than other generations that they will eventually be able to afford a home. So a lack of desire or confidence is not why these younger potential buyers have not been buying homes. Instead, the answer has much more to do with demographics: Millennials have been delaying getting married and having children, the two main drivers for first-time home purchases.

But life catches up to everyone, and as this group ages, they will begin to settle down and start buying homes en masse. Being the largest generation in the country, millennials also have numbers on their side.

Finally, the rising rents mentioned above will force current young renters—no matter how content they are renting—to consider buying a home, if only to keep their monthly payments fixed. Given lifestyle preferences, it’s possible and maybe even likely that these home purchases could lean more toward condos or townhomes located closer to city centers, and away from suburban subdivisions and single-family cul-de-sac communities.

Whatever the type of home purchased, there will be a shift among this group toward homeownership, and away from renting. In many areas, the gap between the homeownership rate of millennials and older Baby Boomers is already quite narrow relative to other places, including large markets like Las Vegas and Fresno, California.


Builders Will Build More, Less Expensive Homes

In general, home builders appear to have made a tradeoff in recent years: To sell fewer, more expensive homes instead of selling more, less expensive homes.

Currently, newly constructed homes command a roughly $75,000 premium over existing homes, putting a new home out of reach for many would-be first-time buyers. Additionally, even though inventory of for-sale homes is up overall, in many markets inventory at the lower end of the market is far more constrained than at the higher end.

Take Denver, for example. In October, there were almost four times as many homes available for sale in the Denver metro in the upper price tier (priced at $357,900 or more) than there were homes priced in the lowest price tier (less than $219,000). The same pattern held true in many other markets, as well. Dallas, Atlanta, Phoenix and Nashville all had at least two times more homes for sale in the top tier than the bottom tier in October.

But we expect more bottom-tier inventory to come on line over the next year, and a lot of that will come from builders turning their attention away from the upper part of the market and toward the lower end, particularly as more millennials enter the market, as noted above. New home sales volume has been stuck around the 450,000 per year mark. In order to break out and get that number above 500,000, builders are going to have to start to build cheaper homes, which will help to narrow the price gap between new and existing homes and contribute to more rapid inventory gains both overall and at the lower end of the market.


And as a Result, Homebuyers Will Have More Leverage Overall in the Market

For all of the reasons outlined above, buyers in general will have more negotiating power in the market.

In many ways, conditions have been ripe for buyers for several years: Home affordability is very high, thanks to home values that remain almost 10 percent off their pre-recession peaks and mortgage interest rates that remain near all-time lows. What’s been missing has been inventory of for-sale homes, both from a lack of sellers and because investors and all-cash buyers scooped up thousands of properties in the wake of the foreclosure crisis, and have not begun selling them off yet at a sufficient pace to keep up with demand.

But inventory is coming back, and will gather even more momentum as builders ramp back up. As a result, instead of buyers feeling the competitive heat and engaging in bidding wars to the benefit of sellers, that pressure will instead shift to sellers competing with the home down the block for offers and attention. This will lead to price cuts, which will help keep homes affordable for more buyers.

We’re already seeing this occur. Roughly 37.4 percent of all U.S. listings on Zillow had at least one price cut in October, up from 34 percent at the same time last year. The median price cut nationwide was about 5.4 percent in October, or more than $9,500 based on the October median home value of $177,500.

More selection, better deals and continued low mortgage rates, coupled with an increasingly difficult rental environment, will help bring balance to 2015 and result in smoother sailing for everyone as they enter the housing market.

Stan Humphries
Stan is Zillow's Chief Economist.

Why Redfin Is Predicting a Home Sales Surge

A slowdown in home price growth and a shift in pricing power from sellers to one that more closely aligns with buyers expectations will “drive an unusual surge in home sales this fall,” predicts analysts at the real estate brokerage Redfin in its latest housing report.

“Home buyers who have been willing to wait for better deals are starting to be rewarded for their patience, as sellers drop listing prices to meet buyers’ more value-focused expectations,” Redfin notes in its latest report.

The number of homes that sold above list price in July was down nearly 7 percent to 20.1 percent from 26.8 percent a year ago, according to Redfin’s analysis.

“Sellers are finally catching on that it’s not a seller’s market anymore,” says Jeremy Cunningham, a Redfin real estate professional in Virginia.

Sellers are adjusting their prices, particularly in markets that have seen a large increase in for-sale inventories or big increases in home price appreciation over the past year.

According to Redfin, Denver is the metro that has registered the largest percentage of listing price drops. Its median sales price has increased by 15 percent year-over-year compared with an average of 5.5 percent for all metros.

On the other hand, Ventura County and Sacramento, Calif., have seen more moderate price growth year-over-year but have seen their for-sale inventories rise by 25.6 percent and 18.3 percent, respectively. The two metros had the second and third largest percentage of homes for sale with price drops in July, according to Redfin.

Some of the metros with the fewest price drops tended to have smaller increases in median home prices and for-sale inventories, analysts note. On the other hand, some West Coast markets like San Francisco, San Jose, Los Angeles, and Seattle continue to sell for more than list price.

Get Ready for a Hot Fall?

Redfin analysts are predicting a surge in home sales in September and October.

“We continue to see strong buyer demand as we head into fall,” according to Redfin’s housing report, which shows the number of tours and offers picking up from July and into August. “The buyer fatigue from competing against multiple offers, bidding wars. and tight inventory is diminishing. Additionally, the widespread increase in price drops is likely to give buyers even more confidence that they have regained some of the bargaining power lost last year.”

Also, analysts note that borrowing costs still remain attractive, which will help buyers off the fence. Mortgage rates continue to hover near yearly lows. 

Source: “Listing Price Drops Will Help Drive a Fall Surge in Home Prices,” Redfin (Aug. 29, 2014)

Singles: Why We're Buying Now

Seventy-five percent of single home owners ages 25 to 50 say home ownership is important to them, according to a new Century 21 survey.

These are the top three reasons single home owners say they decided to buy: They viewed home ownership as an investment in their financial future; they were tired of paying rent; and they thought it was the right time to purchase a home.

Nearly one-third of all real estate purchases in 2013 were made by single home buyers, according to data from the National Association of REALTORS®.“We are in the midst of a shift in the home-buying population,” says Rick Davidson, president and chief executive officer of Century 21 Real Estate LLC. “This survey shows that home ownership is a major life decision for singles and that it is just as important a part of the American Dream for them as it is for married couples.”

But single home buyers say it wasn’t easy to achieve home ownership because many were intimidated by the home-buying process, and they had to make several sacrifices in order to buy a home.

Nearly two-thirds of single home owners say they overcame a roadblock to buy their home. The most intimidating parts of the home-buying process, they say, included making an offer and negotiating a price (38%); obtaining a mortgage (36%); moving (31%); closing (30%); and searching for and locating a home (25%).

Singles also say they had to make several lifestyle sacrifices: 60 percent say they had to dine out less to purchase a home, and half say they had to cut back on entertainment. Fifty-one percent say they had to spend less on vacations.

What were their most important considerations in buying a home? Single home owners rated space and square footage (59%); the yard (57%); and proximity to work or school (47%) as the most important criteria in their house hunt, according to the Century 21 survey. Good cell service and proximity to public transportation tended to be more important to single home owners 25 to 35 years old than those 36 to 50 years old.

The younger set was also more likely to say they searched for real estate on their mobile devices.

Source: Century 21

HOME APPRECIATION SLOWS

County median price rises to $445,000 as increases return to regular levels even amid tight inventory
Annual home price appreciation in San Diego County is nearly back to a normal pace, continuing its descent from last year’s gains of more than 20 percent.

Last month, the median price for a home sold in San Diego County was $445,000, which is 6.6 percent higher than the median price in July 2013, real-estate tracker CoreLogic DataQuick reported Wednesday.

By comparison, home prices in July 2013 were up 22.1 percent from the previous year, an increase driven largely by investors who fixed up and resold distressed properties, or rented them out and therefore constrained supply.

“When we were seeing 22 percent price appreciation, I would argue it wasn’t the case that the same exact house was selling for 22 percent more,” said Jordan Levine, director of economic research at Beacon Economics. “It was that the mix of houses were skewing toward less distressed, which pumped up those overall medians.”

Levine said he sees annual appreciation returning to about 4 to 5 percent, which is in line historically with incomes and inflation. In the housing bubble that led to the Great Recession, eased lending standards allowed home prices to grow beyond what incomes could support, Levine said.

From June to July, the median home price in the county declined by $5,000. At the same time, activity in the county’s real-estate market declined both over the month and annually. In July, there were 3,474 transactions closing in San Diego County, down from 3,736 in June, and an 18.5 percent drop from the 4,260 transactions in July 2013.

Gary Kent, a La Jolla-based agent with Keller-Williams, said he considers the current housing market to be the first balanced market since 2000, meaning it’s not a strong buyer’s or seller’s market.

“I think that’s partly because prices have reached the point that we have some people selling because they like the price they can get for the house,” he said. “The flip side is that buyers aren’t seeing what looked like bargain prices anymore. Some buyers are dropping out of the market saying, ‘Well, it’s not a bargain.’”

While the market may be returning to regular levels, inventory remains constrained, although it is improving. In July, there were 8,122 active listings in the county, up from 5,443 a year earlier, the San Diego Association of Realtors reports. July’s supply represents a little more than two months of inventory, while Levine said economists would like to see five to six months worth of inventory.

He also noted stricter lending standards were curtailing affordability, although the average rate for a 30-year fixed mortgage in July was 4.13 percent, down from 4.37 percent a year ago, Freddie Mac reports.

The slowdown in the housing market isn’t limited to San Diego but extends across Southern California, where sales fell to a three-year low, DataQuick analyst Andrew LePage said in a statement.

“Prices came a long way in a couple of years, and now a lot of would-be buyers just can’t stretch their finances enough to buy in today’s more conservative lending environment,” he said. “The more spectacular annual price gains of a year ago — over 20 percent — seem far back in the rear-view mirror now. Looking ahead, such double-digit price jumps seem unlikely unless there’s a burst of pent-up demand, perhaps triggered by more robust income growth, a loosening of mortgage credit or a significant move in interest rates.”

Los Angeles saw its median home price increase 7.6 percent over the year to $457,500, while Orange County’s median value increased 8.4 percent annually to $585,000.

A separate report released this week by the National Association of Realtors, which measures only single-family homes, says in the second quarter San Diego County was nation’s fifth most expensive housing market behind San Jose, San Francisco, Anaheim-Santa Ana, and Honolulu.

Written by, 

Jonathan Horn

U-T San Diego

Case-Shiller: House prices up 12.3% in May

Los Angeles and Orange county house prices continued their two-year rise through May, but at a much slower pace, the S&P/Case-Shiller Home Price Index reported Tuesday.

The value of single-family homes increased 12.3 percent from May 2013 levels -- the fifth-highest increase among 20 metro areas included in the survey.

While that marked the 23rd month of year-over-year increases, it also was the smallest annual gain in almost 1 1/2 years. Prices jumped as much as 22 percent during last year’s now-cooling market frenzy.

Rising competition among a growing number of home sellers and falling investor demand contributed to a leveling off of home prices, local observers say.

Nationally, prices increased 9.3 percent in the 20-city composite, with appreciation decelerating in 18 of the 20 metro areas, the report said.

“Home price gains have been tapping the brakes,” Quicken Loans Vice President Bill Banfield said in a media statement.

Case-Shiller’s report -- based on comparisons of recent prices to previous sales for individual homes -- shows further that:
L.A.-O.C. house prices now are up 39 percent from the bottom reached in February 2012.
But local prices remain 19 percent below the peak hit in September 2006.

Written by,
Jeff Collins

Gen Y Is Ready To Buy

One Cool Thing is published by the CALIFORNIA ASSOCIATION OF REALTORS®, a trade association representing more than 150,000 REALTORS® statewide. 

It’s official: Zillow will own Trulia

"Better agents make for better advertisers"

Zillow today announced that it has entered into a definitive agreement to acquire Trulia for $3.5 billion in a stock-for-stock transaction.

The two companies will remain separate entities, though real estate agents will be able to advertise on both sites and gain access to combined tech efforts, the company's CEOs said this morning. The deal will require regulatory approval.

Rumors of the deal first surfaced last week.

Together, Trulia and Zillow’s 84.6 million unique visitors in May 2014 account for twice the number of unique visitors as the next three real estate websites put together, according to the Beyond Syndication 2014 report fromClareity Consulting.

“Consumers love using Zillow and Trulia to find vital information about homes and connect with the best local real estate professionals,” Zillow CEO Spencer Rascoff said. “Both companies have been enormously successful in creating compelling consumer brands and deep industry partnerships, but it’s still early days in the world of real estate advertising on mobile and Web."

During a conference call on the deal, Rascoff said the real ad potential for the two companies is working to move real estate marketing from offline to online.

"Better agents make for better advertisers," he said, adding agents still spend on mailers and billboards, but the mobile revolution will likely drive them to either Zillow, Trulia or both.

Both Zillow and Trulia generate the majority of their revenue through advertising sales to real estate professionals.

And this is the main area of focus, the companies say.

The two companies’ combined revenue currently represents less than 4% of the estimated $12 billion real estate professionals spend on marketing their services to consumers each year.

The companies say the two companies will remain separated. They say users of the two sites rarely overlap, for example.

According to a release, maintaining the two distinct consumer brands will allow the combined company to continue to offer differentiated products and user experiences, attract more users and maximize the distribution of free content across multiple platforms, apps and channels.

During the call investors were largely congratulatory, but a question was raised about the "premium" price Zillow is spending for Trulia. So far, neither company is hugely profitable.

For FY2013, Zillow had explosive revenue results, increasing 69% to a record $197.5 million. But the company posted an annual net loss of $12.5 million, mainly due to the cost of the advertising blitz the company put on. In FY2012, the company had a profit of $5.9 million.

Meanwhile, Trulia also saw a net loss in FY 2013. On rapidly growing gross revenues of $143.7 million, the company saw a net loss of $17.8 million.

Written by,
Jacob Gaffney