Predictions for 2015 in real estate

With the D.C. area among many analysts’ top markets for 2015, the area should see above-average growth throughout the year compared to a somewhat average 2014. (Washington Blade photo by Michael Key)

Let’s be honest about the 2014 real estate market: It wasn’t exactly the greatest year for growth in Washington, D.C. As of the end of November this year, the number of units sold in Washington, D.C. has increased 4.13 percent. Sure, growth is always great, but when compared to the same time last year, the area had seen a 14.14 percent increase in total real estate units sold compared to 2012; albeit, 2013 was a year that was overall much more productive than 2012, perhaps explaining the sluggish 2014.

As we look forward to 2015 it is essential to associate the mild 2014 as an indicator for the positive direction the Washington, D.C. market will turn next year. Nationwide, the National Association of Realtors (NAR) predicts that the number of sales of existing single-family homes will increase by 5.8 percent in 2015 with the median price rising by 5.2 percent. Compared to the current D.C. climate, this is already an increase in the percent change from 2013 to 2014 (assuming an average over 4.2 percent growth through the year’s end). However, when shifting from the national market to the D.C. market, many analysts predict that the local market will be one of the top markets in the country for 2015 due in large part to the equity that has been built up through a market with limited inventory than comparably size metro areas.

Besides a greater growth in the number of properties sold, other indicators will likely continue to recover in 2015. Overall, 2014 saw a near 14 percent decrease in the average days on market for all properties (from 43 days in 2013 to 37 days in 2014). Due to a market that will likely surpass the national growth, it may be safe to assume this decrease in average days on market will continue. Furthermore, with a more balanced market between the buyer and the seller, we can expect much more equitable deal making across the board according to Coldwell Banker’s top agent James Braeu. This means good news for new buyers to the market as D.C. has often been associated much more with a seller’s market.

What about the individual, taste-specific market trends for real estate in D.C.? According to the MLS, the greatest appreciation for home purchases in the city has been outside of the downtown area. From the Southwest Waterfront to Cleveland Park to Hillcrest (the area with the greatest appreciation), home values are generally appreciating more outside of the traditional downtown neighborhoods (though this trend has been predicted for years because of a limited inventory in the most urban settings). Another predictor of this growth in a more suburban setting is the presence of a boomer generation upgrading from a 1-2 bedroom condo to a much more spacious single-family home. As predicted by Michael Marriott and Stanton Schnepp, two of Coldwell Banker’s top real estate agents, sellers are cashing in on their condominium’s equity and taking advantage of low interest rates in order to purchase a fee-simple house. Their new mortgage is normally equal in value to their condo when factoring in the cost normally associated with a condo fee.

Now, what about paying for your next home? One standout in 2014 was truly the drop in interest rates. From January of this year, rates were averaging at or around 4.3 percent. Over the course of the year, the national interest rate has dropped for most to at or below 4 percent. For 2015, rates are predicted to increase sometime in the next six months and continue this cycle for the next two years. Thus, for buyers hoping to lock in a great low rate on a mortgage, the time to buy is truly in 2015.

In summary, perhaps it is somewhat safe to have optimism for the 2015 real estate market when compared to our mild 2014. With the D.C. area among many analysts’ top markets for 2015, the area should see above-average growth throughout the calendar year compared to a somewhat average 2014.

 

Tim Savoy is a real estate agent with Coldwell Banker Residential Brokerage, Dupont Circle. Reach him at 202-400-0534 or timothy.savoy@cbmove.com.

How Homeownership Serves as a Steppingstone to Wealth

Real Estate News   |  Dec 5, 2014 |  By: Jonathan Smoke

A recent editorial in the New York Times focused on homeownership and wealth creation, drawing on research from the Joint Center for Housing Studies at Harvard University and concluding that “as a means to building wealth, there is no practical substitute for homeownership.”
But just why is homeownership so important to building wealth? Here’s what the researchers at Harvard found in their 2013 research, and what it means for you today.

A Mortgage Forces You to Save

Buying a home through a mortgage forces savings through the form of the monthly payments of principal. Rent vs. buy arguments normally focus on the monthly payments, and the buying cost is a function of the monthly mortgage payment as well as escrows (insurance and property taxes).
But the mortgage payment comprises an interest component and a principal component, and the way the payments are split between interest and reduction of principal (the total amount borrowed) changes over time. In general, more interest is paid at the beginning of the mortgage. The longer you have the loan, the greater the share of your payments that is going to pay it down.
The payment of principal as the loan ages is, therefore, a forced savings plan whose deposits are growing—without any more being taken out of your pocket.

Homes Deliver Real Appreciation Over Time

We now have lived through periods of abnormal price increases as well as periods of abnormal price declines. Even so, when you take the long view, the compounded annual return of home prices has exceeded inflation by close to a full percentage point. In other words, while there are periods of above normal and even negative changes in value, home prices increase faster than inflation over time.
And those increasing values compound over longer periods of time. For example, the Harvard study highlighted that if an owner had experienced the average gain in home prices from 1975 to 2012 as measured by a common home price index, that owner would see have seen a real, inflation-adjusted gain of 26% over 30 years.
That means that after adjusting for inflation, at the end of a 30-year mortgage, a typical home would be worth 26% more in current dollars.

Buying With a Mortgage Increases the Returns of Owning a Home

The Harvard paper used the example of a buyer putting down 5% and experiencing 4% appreciation. After five years, the house would be worth 22% more—or more than five times what the owner put down.

Homeowners Enjoy Multiple Tax Benefits

Many homeowners enjoy the benefit of the mortgage-interest deduction, which enables them to deduct the annual interest paid on a mortgage along with property taxes. Furthermore, substantial gains (up to as much as $500,000) are exempted from capital gains upon the sale of a home.

Homes Protect the Owners From Rising Costs

As discussed above, home prices historically outpace inflation—the result of prices rising over time. But buying a home with a mortgage actually provides even more of a protection from a very real threat in the form of rising rents.
A mortgage locks in the majority of a homeowner’s housing costs. As time goes by, the monthly payment remains the same, yet because of inflation the real payment, cost actually declines. That means that over time, homeowners pay an increasingly smaller share of income on housing.
The Harvard study cited these stats: Assuming a 30-year fixed rate mortgage, inflation of 3% and 1% growth in real (inflation-adjusted) home prices, property taxes, insurance and maintenance costs, real monthly housing costs would decline by about 10% after five years, 15% after 10 years and 30% by the last year of the mortgage. Then when the mortgage is paid off—and the home is owned free and clear—the costs of owning in real terms are less than half the payments made at the time of purchase.
The alternative to owning does not have such a pleasant long-term outcome. Rents would at least keep pace with inflation, meaning that the renting household would never see their real housing costs decline.
Homeownership remains a key part of the American dream for many quality-of-life reasons—like simply having a place to call your own. But as this research indicates there is also a clear financial benefit as well: Owning a home over time enables growth in household wealth.

Should You Remodel or List Your Home For Sale?

Realty Times, by Blanche Evans on Wednesday, 19 November 2014

If you've been watching a lot of HGTV, you may be in the mood to make changes. Is it time to remodel? Or is it time to sell?

Just like anything that gets a lot of use, homes show wear and tear after a few years. Certain color schemes and decorative styles begin to look outdated. And there are some improvements that you may have put off as a new homeowner that you can afford to do now.

     

Some market conditions are in your favor -- interest rates are still extremely low and below where they were a year ago and the economy is improving, so you'll likely get much of what you spend to improve your home back when it comes time to sell.
The question to answer is this: If you improved your home the way you want, would you want to stay in it for a few more years, or are you ready for a complete change?
Home improvements can be substantial, such as adding a bedroom and bath to the existing footprint of your home or outfitting a kitchen with new countertops, cabinets and appliances. You want your home to support the standards set by your neighborhood, but you also don't want to end up with the most lavish house on the block.
To get started, put together the right team. If you' aren't moving walls or pouring a new foundation, you probably won't need an architect, but you will need the right contractors, kitchen planners and interior designers to help you put it all together.
You'll also need to talk to your lender to learn how much you can borrow and whether the current market value will support the facelift.
As you're putting together bids, you may find more work is required that you weren't expecting. Plan for problems to come up, change orders and delays on materials, so you won't get upside down with expenses or sideways with your contractor.
Before you make a decision on remodeling, make sure you are going to get what you want at the price you want to pay and that you'll be happy with the results for at least several years to come.
If you're not sure the remodel is the way to go, you can talk to your real estate professional. Be honest with your agent that you are considering remodeling, but that you are also open to finding another home. Your agent might know of homes for sale that have the size, features and finishes you're wanting. After you view a few homes, you should have a better idea of what you want and what you like.
You and your agent will also discuss selling your home. He or she will create a comparative market analysis of similar homes to yours that have sold recently and are currently for sale so you'll know what you can reasonably expect to net from the sale of your home. From these homes, you'll learn how long homes are staying on the market and if other sellers are getting their asking prices. Together you and your real estate professional can discuss a price range for your home, based on its location and condition.
Keep in mind that all markets have ups and downs so what your agent can show you is only a snapshot of what's true today. If you're happy with where your home ranks amid the competition, then it should be a good time to list your home for sale.
Change is an evolution, and will bring some upheaval to your life. You'll either have to open your home to workers or to buyers. But if you come out on the other side with what you and your household desire, it will all be worth it.