The December statistics for housing in Hampton Roads just rolled in, and it does appear we are riding into 2016 on a high tide! With the Great Recession officially in the history books, consumer confidence and positive economic data abound, with experience as our compass. I am excited about the opportunities for Buyers, Sellers, and Investors this year and look forward to helping make some goals come to fruition for my clientele.
In October 2015, the Home Builder Confidence Index reached it's highest point in a decade. Housing starts ended 2015 with the healthiest gains in 8 years, mostly in multi-family complexes. As builders are reviving inventory shortages, we agents are experiencing home buyers at unprecedented levels. Boomerang Buyers who survived foreclosures and short sales are returning to the market as their finances have recovered and credit has improved. An estimated 7 million of these buyers are expected to be back in the market over the next 5 years or more. They will be joining the Millennial Buyers, those born between 1980-2000, who are settling into careers and marriages and making the Home Ownership decision. Millennials were the largest percentage of buyers for the second year in a row in 2015.
In the mortgage industry, we experienced some positive change in 2015. Loan Estimates have replaced Good Faith Estimate, encouraging consumers to have a better understanding of the costs to obtain financing and have a firm number three days before their closing date, eliminating many last minute frustrations and misunderstandings at the time they close on their home. Also, the Fed determined that economic conditions were healthy enough to raise the (Federal Funds) interest rate by a quarter percent in December. Some factors used in the decision include the US unemployment rate steadily below 6%, inflationary indexes, and the health of emerging markets. While unemployment has declined, there has been limited wage growth. The expectation is the US will stat on course for it's longest expansion in nearly a century. While inflationary indexes indicate the economy is ready to return to the goal of 2% annual inflation, the continued decline in oil prices (from $110/barrel in mid 2014 to $30/barrel last week), could keep inflation at or near zero. This has a positive effect on the global economy as most consumers benefit from lower oil prices (exceptions to Kuwait and Saudi Arabia). The US and European markets are experiencing their best growth in 2 decades. On the flip side, Greek debt, rebalancing China, and the shrinking economies of Brazil, Russia, and Iran really define the emerging market indications to be generally unstable. Investors are finding comfort in Treasury bonds, which has resulted in mortgage rates decreasing. In addition, some lending restrictions implemented since the Great Recession have eased. FHA premiums have decreased, saving the average home owner about $900 on Mortgage Insurance Premiums. Down payments requirements have decreased. And more lenient financing programs and grants for buyers have emerged as bank seek investment opportunities.
Locally, we closed out 2015 slightly ahead of 2013, at 58.7% of homes on the market in Southside Hampton Roads sold, and a 20% increase in those under contract. The inventory of homes in the market has fallen below historic averages while decreasing the absorption rate (amount of time it takes to sell) to 5.17 months. Everything is local in regards to real estate, so while Virginia Beach (as a whole) averaged 4 months, Portsmouth averaged 7 months. For a report of your neighborhood-specific absorption rate, contact me and I will work it up for you. Due to limited inventory, Sellers continue to enjoy modest price increases, kept in check by vigilant appraisal processes instilled by underwriting standards and government restrictions. For those who are comfortably settled in their primary residence, a rental property is a great investment vehicle at this time, as rental vacancies are low and rent prices have increased nationwide. Another consideration, with consumer confidence continuing to strengthen and oil prices low, stocks in home stores such as Lowes, Home Depot, and Renovation Hardware should see positive returns in the next few years.
In my opinion, while reviewing economic factors on a monthly basis, real estate provides a fantastic investment vehicle in 2016, while wages start to increase and interest rates stay at amazingly low prices. It is certainly my goal to help Millennial Buyers make wise housing choices, give Boomerang Buyers confidence in their next purchases, and guide Empty Nesters in "right-sizing" for their next life journeys. I see 2016 as being another win-win for Buyers and Sellers and am looking forward to helping you, your friends and family, with making gains this year in your home and your lives. Contact me and let me know your home-related needs, and I will help you navigate the waters of Real Estate!A Rising Tides Lifts All Boats.