Market Demand and Inventory
Q: What do you see happening to housing market demand over the next 12 months?
Carol Prieto: I think it’s going to continue to grow, because we’ve been patient for so long, and in the last couple of years we’ve certainly increased sales. We’ve increased buying by about half as much. And even if it’s a little slower right now, it’s also that time of the year. I do think 2015 is going to be a good year.
Linda Feinstein: I think demand is high across the board. Many buyers feel that inventory is low, and when a house comes on that is competitively priced and very attractive, there tends to be a multiple-offer situation, which is something that we haven’t dealt with in the last three or four years. But this year I’ve been in several multiple offer situations. For quality houses, demand is high, and they sell.
Q: How will inventory move? What will buyer/seller markets be like next year?
Jeff Gregory: I expect 2015 to be a great year for real estate. Demand will remain high, and I suspect inventory will hold steady. 2015 will likely be the year that many “upside-down sellers,” who couldn’t qualify for a short sale, finally have sufficient equity to enter the market.
Sean Conlon: I think the market will continue to be strong. We are going through a slightly slow period in the fourth quarter of 2014, but I think 2015 looks good. There will likely be more inventory available, but with rates remaining low, the market should remain healthy. There will likely be more inventory available next year, because sellers will continue to realize that they can actually sell their homes and additionally, builders are continuing to build.
Teresa Ryan: New home construction is still only a fraction of peak levels; therefore, the demand for high-quality product will exceed the inventory, making it slightly a seller’s market (depending on the location and price point). Specifically, first-time homebuyers and downsizers will be the greatest demand drivers for 2015. Investors are still looking for single-family homes as rental properties, which have a good return on investment.
Q: Home price increases this year have been considerable in several parts of the country, like California, Florida and Texas, often outpacing 2013. What is going to keep homes from becoming overvalued in 2015?
Jim Kinney: Those markets that have had extreme appreciation are fed off of by the global market. Chicago has traditionally been a more conservative market. We do have international buyers here, but it’s not an overwhelming part of our market, whereas you can say that Miami is driven by the international market; so, I don’t see any downward pressure in Chicago next year. I think maybe some of those other areas, they have to watch their supply, and I think actually the tightness of supply in Chicago will help our prices go up a little more. What we have to do is keep an eye on the banks once they start lending on construction, making sure they don’t go overboard and flood us with too much supply. Do that and we’ll be able to keep some of that appreciated value. But right now, it’s definitely a tighter market, and that’s what’s pushing prices up more, because we don’t have enough properties for the appetite for buyers that are out there.
Christine Lutz: I have personal experience with Texas in particular, because I do a lot of development there, and that’s a boom and bust market. Because there’s so much land in Texas, it’s not as valued. But it’s always the shiny, new thing they go after in California, Florida and Texas. New is very valued there, but that being said, I wouldn’t be surprised if their markets cool off. I don’t think they’re getting ready for the kind of crash we had last time around, but I think they’re going to start cooling off again.
In Chicago, we didn’t see the kind of escalation that those other markets had. We’ve been a little more gradual, so I don’t think we’re going to see the kind of pullback. Our values haven’t spiked the way that other markets have. It’s been a little more measured.
Buzz Ruttenberg: In my view, there isn’t enough product, and the product that is here isn’t the best. There is so much used product on the market, it’s harder for those people to liquidate their assets at the moment. In Chicago, we have a narrower range of up and down, and, in my opinion, the resale inventory is still okay, so you can get an affordable unit. Those people can’t move up until they sell their home. I think that acts as a controller on runaway pricing in the new construction market.
Q: Investors have been leaving the housing market for more secure and lucrative options. Do you expect this trend to carry over into 2015, and if so, is that good, bad or both for the market?
Jim Kinney: We’ve always had to keep an eye on the government and what they’re going to do with taxes and rates. Everyone talks about 1031 exchanges and things like that, so you have to be careful what they do because that can change the whole tableaux, if you will, for investors. We saw what the collapse of the market and all of the foreclosures did.
We saw a huge entry in the market of funds and individual investors picking up the foreclosed properties, and as those have been mopped up – there are still those out there, but they’re not in the numbers that we saw at the bottom – so has availability. People are still picking up that type of investment, so I think that’s part of why we’re seeing less out there. But the other part is, it’s financing. I think there are investors out there who would love to get into the market, but they’re not finding banks open to financing some of their projects.
When banks decide that it’s ok to go back into single-family construction and condo construction, then you’ll see more investor appetite there. But right now the markets, on both the financing side and product side, are almost anti-investor right now. It’s weak.