2015 FORECAST:  

Millennials on the Move, Affordability, and Inventory  

Realtor.com's chief economist, Jonathan Smoke has his predictions and California Association or Realtors summed them up quite nicely for us. Here you go:

Smoke believes that millennials will break out in 2015 as homeowners and drive household formation. Households headed by millennials will see significant growth as a reflection of economic gains. Millennials will also drive two-thirds of household formations over the next five years.

Overall, both population and households have grown at a slightly higher pace in 2014, and this trend will continue in 2015 with modest improvement over 2014 increases.

Smoke commented, "The story about millennials not forming households and getting into home buying is more of a 2012 and early 2013 story. It's outdated. Our view of 2015 is informed by strong trends and indicators of what's happening today with millennials."

Existing home sales will grow as more buyers enter the market, motivated by a clear understanding that both rates and prices will continue to rise.

Low inventory levels and demand driven by improved employment opportunities will push home prices up next year. While first-time homebuyers have many economic factors working in their favor, increasing home prices will make it more difficult to enter the market.

Mortgage rates will increase in the middle of 2015, as the Federal Reserve increases its target rate by at least 50 basis points before the end of the year. Thirty-year, fixed rate mortgages will reach 5 percent by the end of 2015. 

Affordability will decline in 2015 by 5-10 percent, based on home price appreciation and increasing mortgage interest rates. This decline will be somewhat offset by increasing incomes.

Read the full story here.

DECLINING AFFORDABILITY and DECLINING HOME-OWNERSHIP RATES

Buyers and potential sellers,  please note:  get to know HAI: Housing Affordability Index. It is the most fundamental measure of housing's well being (from a financial perspective) in the state. The higher the number, the more people in the state can buy a home. It measures the percentage of households that can afford to purchase the median priced home in the state and regions of California based on traditional assumptions.

These numbers have dropped significantly in the past couple of years. As of 2014 Third quarter: 17% of people can afford a median priced home in Santa Cruz County; 27% in Monterey County, and 21% in Santa Clara County. See more here:

What parallels the HAI are home ownership rates. California has the third lowest home ownership rate in our country. As of Q2 2013, it is at 54%, behind DC and New York. It is right in line with low affordability index. Home ownership rates are at the lowest level in our country since 1995. See more here. 

I have a BIG question for you at this point in time: Is home ownership better for a country and for its citizen's? The USA tends to be pro home ownership, though not all countries have this stance. The German's and Swiss have some of the lowest home ownership rates of all industrialized countries. They have robust economies as well. Interesting, read more here. At Schneider Estates we are focused on creating harmony in the lives of our clients, customers, and community so we hope to help each of you decide if home-ownership is really the best option, and if so, provide counsel in your decision making. It's important to examine this matter in depth for each person.