Real estate experts and economists are anticipating the housing market recovery will pick up pace this year. But in spite of their optimism there are still a few things that could threaten this recovery.
Institutional investors played a large part in the housing market recovery through buying up thousands of properties and renting them out. Now we are a few years in, many have already realized substantial gains on their investment and at the same time house price increases have begun to slow. The concern is that many of these institutional buyers may be ready to sell and realize the return on their investments.
According to a report by Realty Trac which analyzed more than 200,000 purchases made between January 2012 and August 2014, those institutional investors who bought in 2012 could see returns of between 38% and 43% if they sold up now. The article in money.CNN.com points out that there are already some signs that investors may be pulling out of the market as figures from the National Association of Realtors showed that while institutional investors accounted for 20% of sales last January, this figure had dropped to just 15% in October.
Foreign buyers have also played a part in helping the real estate market recover, but just recently the value of the dollar has begun to strengthen, making US housing more expensive. At the moment sales to Chinese buyers remain strong, but sales to buyers from Russia and Europe are beginning to slow down. Russia is particularly affected due to falling oil prices, international sanctions and their own currency has suffered a massive loss of value. One of the first areas to feel the effects of fewer foreign buyers is California, as data from the California Association of Realtors shows the number of sales to international buyers has fallen by around 25%.
The jobs market may be improving, but incomes are still failing to keep pace with real estate prices. This could mean it’s harder for buyers to afford homes in areas they wish to live in and housing affordability is likely to be a growing problem. In addition, some potential home-buyers still have trouble getting mortgages. Even though Fannie Mae and Freddie Mac recently eased lending conditions, many lenders still remain nervous about advancing loans to borrowers who don’t have large cash down payments or near perfect credit scores.
Former homeowners who lost their properties to foreclosure may still be trying to overcome the damage to their credit histories, while millennials are faced with the problem of having short-lived credit histories and large student loans.