Real Estate Resolutions and Predictions for 2015

It is that time of the year again to ponder what is expected to happen next year and what we should resolve to do about it. One prediction that I suspect will hold true (even though it is sunny and 55 degrees in Cleveland today) is that it will snow again in Ohio this winter. Other predictions that I hope become true in 2015 are a victory by Ohio State over Alabama, an NBA title for Cleveland and a Super Bowl victory for Cincinnati.

Beyond sports dreams and weather expectations, since this is the Ohio Real Estate Blog, we have also uncovered the following real estate resolutions and predictions for 2015:

Commercial Real Estate Predictions

According to the National Association of Realtors [“NAR”]), the forecast looks pretty bright for commercial real estate in 2015 in the following sectors:

1.    Apartment Sector: The rental market is likely to remain a “landlord’s market” in 2015, with vacancy rates expected to stay below 5 percent in 2015. This will likely lead to demand pushing rents up even higher and keeping them above inflation.  Apartment rents are projected to increase 4.1 percent in 2015.

2.    Office Sector: Vacancy rates are likely to fall from 15.7 percent to 15.6 percent in 2015, with rents expected to rise 3.3 percent next year.

3.     Industrial Sector: Vacancies are likely to rise from 8 percent to 8.4 percent next year, while annual rents are expected to rise 2.9 percent in 2015.

4.     Retail Sector: Vacancy rates are projected to drop from 9.7 percent this year to 9.5 percent in 2015. Average retail rents are likely to rise 2.5 percent next year.

Residential Real Estate Predictions

A review of predictions from the National Association of Realtors (“NAR”), the Mortgage Bankers’ Association, Freddie Mac economists, Trulia, Zillow and Forbes Magazine indicates:

1.         Mortgage Rates: Most of the experts expect the Federal Reserve to increase the federal funds rate by mid-year, with a rise in mortgage interest rates soon to follow. The predictors estimate mortgage rates to rise between 4.5 and 5 percent by the end of 2015.

2.   Home Prices:  Zillow predicts home prices will rise just 2.5% in 2015; Freddie Mac expects appreciation to drop to an average 3 percent in 2015 (continuing a slide from 9.3% in 2013, and 4.5% in 2014) while Realtor.com predicts an annual gain of 4%-5%.  Most experts agree that slowing price increases doesn’t mean that homes will become more affordable, because of the expected rise in interest rates and the fact that the rate of home price appreciation will be faster than the rate of increase in incomes next year. Ohio home values have gone up 5.4% over the past year and Zillow predicts they will rise 2.3% within the next year.

  

3.    Housing Starts: According to Freddie Mac, homebuilding is expected to ramp up in the new year, projected to rise between 16-20 percent from 2014. That will likely help total home sales to climb by about 5 percent, reaching the best sales pace in eight years.

4.        Rents: In 2015, demand for new households is expected to increase, but instead of buying many will rent, because they will not be able to afford a down payment. This factor is expected to increase demand for multi-family housing, which is projected to push rents up 3.5% in 2015.

5.       Multi-family Mortgage Originations: Mortgage originations for the multi-family sector have increased approximately 60 percent between 2011 and 2014. As mortgage rates begin to climb, and refinancings level off, a more modest 10-15% increase is projected for 2015.

While it appears the leading real estate indicators demonstrate a mixed bag of tricks for 2015, (at least re: housing) pundits have a straightforward explanation: the housing market has been shifting out of rapid recovery and into a more stable phase that economists are calling the new normal. In other words, according to a recent blog commentator, “It appears 2015 is the best time to fix your credit and start looking for a home you can settle into.”

Real Estate Resolutions

Whether or not you own commercial real estate, or your own home, following through with these resolutions could dramatically increase your bottom line:

1. Make additional mortgage payments. Making extra monthly payments can dramatically shorten the time until your mortgage will be paid in full. One example by Bankrate.com shows that paying an extra one-twelfth of a 30 year, $852/month, $150,000 mortgage (at 5.5%)  or $71, each month increases the payment to $923, but shortens the term by five years and cuts the interest expense over the term of the loan by $30,789.

2.      Pay off a second mortgage.

3.      Refinance. While you always need to factor in closing costs, “points” (percentage points of the loan) and how long you expect to own the property, all of the forecasters show rates increasing in 2015. In other words, if you are waiting for rates to decrease further before you refinance, odds are you will have waited too long.

4.     Challenge your property tax assessment. If property prices have dropped in your neighborhood, you may want to consider appealing your real estate taxes since the tax is based on your property’s value.

5.            Take smart steps before you buy or sell. If you expect to buy in the near future, work on your credit score and engage a broker sooner vs. later to get a feel for the market. If you expect to sell in the near future, start the de-clutter process now. It is also time to stop deferring maintenance, and to start repairing major items that devalue your property.

Here is hoping all the good predictions come true, all the not so good predictions never materialize and all of our readers have a happy and healthy New Year.