We believe that there is no reason to believe that home prices will not continue to rise in 2015. BanCorp would not be surprised if the average price increase stood at 5% across the board. Present inventory might be higher than normal to flat and we don’t believe that Fannie or Freddie will ease lending standards but with annual inflation running at 2%, an additional 2 -3% increase up and beyond this is not wishful thinking as the generation “Y” market continues to enter the market.
Interest rates remain at historically low levels and they won’t remain there. If rates were to increase a single point, the corresponding monthly payment increase to the borrower is approximately 20 -25% which obviously reduces buying power and this will drag down home prices due to the fact that the buyers will be expecting the sellers to drop the asking prices to reflect the higher borrowing costs. With that being said, BanCorp believes that even a ½ % increase in rates during 2015 is highly unlikely, the Federal Reserve is too active in the market and this simply would be too dramatic of a hike and they have an excellent pulse of the market right now.
In conclusion, expect supply to outweigh demand, but this will not damper increasing home values due to low interest rates and new buyers entering the market helping to fuel home prices.