This past week Gary Keller, Founder of Keller Williams Realty International and one of the leading experts in Real Estate trends and forecasting, delivered his annual “Vision Speech” containing his Real Estate and Economic forecast, which in my opinion, is the most in depth and sensible analysis of what is happening and what we can expect going forward in the US Real Estate market.
I’ve attached a PDF of the graphs and slides from his presentation, which are a little technical, but great information if you are interested in the economy and housing market trends. Below are several highlights from his presentation. I hope this information is informative and helpful. Please feel free to contact me any time with questions.
- Home Sales: 2015 was the best year for home sales since 2006 with 5.26 million homes sold.
- Home Prices: The median home price for 2015 was $222,400, which is back to the level of level of 2006 home prices.
- Inventory: Home inventory is back to a “balanced” level of 4.8 months of inventory.
- Mortgage Rates: Mortgage rates averaged historical lows of 3.85%. The Federal Government desperately wants to increase rates to the 5%-6% range as soon as the economy can handle it since lowering rates is their only tool to combat a recession. Current rates take that tool away and leave them helpless if a recession hits. Warning: rates will increase as soon as the Fed feels the economy can handle it.
- Affordability: The average homeowner spent 15% of their income on their mortgage payment, which is historically very low. The monthly payment for identical homes is only $200 more than a payment was in 1995, even though the average income has increased nearly $20,000. Between the lines: Now is the best time to invest in Real Estate as mortgage rates and prices will increase over the next few years. This level of affordability will likely not last.
- Gross Domestic Product: The economy grew by 2.4% in 2015, which is a little slower than we would like to see. The slow growth is attributed to a drop in oil prices. While we all like cheap gas prices, this could actually spell trouble for the world economy, so expect governments to take measures to increase oil prices immediately.
- Unemployment: In 2015 unemployment averaged 5.3%, down from the 9.6% high of 2010. 5% unemployment is considered the target level. This creates competition for employers to find quality employees and should lead to wage and salary increases.
- Inflation: Inflation was at 2% in 2015 which is considered right on par with the target rate.
- Lending and credit standards are starting to loosen greatly for borrowers.
10: Distress Sales and Underwater Homes: Distress sales, which consist of foreclosures and short-sales, were down to 8% of the total market in 2015 from the 2008 high of 49% of the total market. The target rate is 5%. In addition, 8.1% of the nations homes are “under water” in their mortgage, down from 25% in 2011. The target “under water” rate is 6%.
- First Time Home Buyers: This is the one stat that needs to improve for our Real Estate market to be considered officially “back to normal”. First time home buyers accounted for 32% of home sales in 2015. The target rate is right around 40%. The main cause of this is considered to be the increase in student loan debt, which is a huge issue in our national economy. I expect this to naturally increase over the next few years due to the size of the Millennial Generation, which is the largest generation in US history.
Again, there is much more information included in the attached presentation.