2. HRSR 02-01-2016 - Laserfiche WebLink

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CHALLENGES AND OPPORTUNITIES • Lender-mediated Properties. As illustrated in Table FS-1, lender-mediated properties have declined substantially since the housing downturn and Great Recession of last decade. Lender mediated properties (i.e. foreclosures and short sales) accounted for over 70%of transactions between 2009 and 2011 before declining annually since and comprising about 12%of transactions thus far in 2015.The continued decline in lender-mediated properties will enhance the overall real estate market and pricing will continue to gain from all the losses of last decade. The median sales price is still down about 10%from the height of the real estate market; hence some homeowners are still upside down on their mortgage. As more and more homeowners regain lost equity, the real estate market will experience strong velocity as many owners desire trade-up housing. • Lot Supply. Tables FS-9 and FS-10 inventoried active subdivisions with available lots. Based on our research there are under than 200 finished vacant single-family lots, not included scattered lots throughout the city. Based on this lot supply and the recent construction activity over the past few years, the current finished lot inventory is very low and is less than three years. Therefore, future lots will be needed to be converted to finished lots to meet this demand. Because of the time frame to deliver lots (i.e. permitting process, infrastructure, etc.) new platted lots should begin in 2016 to ensure the lot supply will be ample to support new construction throughout this decade. • Mortgage Rates. Mortgage rates play a crucial part in housing affordability. Lower mortgage rates result in a lower monthly mortgage payment and buyers receiving more home for their dollar. Rising interest rates often require homebuyers to raise their down payment in order to maintain the same housing costs. Mortgage rates have remained at historic lows over the past several years coming out of the Great Recession. However, the Federal Reserve has indicated they may begin raising the Federal Funds Rate this December 2015 and into 2016 that would result in an increase in interest rates. The anticipation of the rate hike has increased buyer activity in 2015 as buyers are locking today's interest rates hoping to avoid rate increases. The anticipated increases are projected to be small; although affordability will be affected most economists do not anticipate a major change in the short-term. Low mortgage rates have been critical for the housing recovery; especially in a market like Elk River that was affected by significant lender-mediated properties. A significant increase in rates (+1%or more; over 5% in the short term) would greatly affect the housing market and would slow projected housing demand. The following chart illustrates historical mortgage rate averages as compiled by Freddie Mac. The Freddie Mac Market Survey (PMMS) has been tracking mortgage rates since 1971 and is the most relied upon benchmark for evaluating mortgage interest market conditions. The Freddie Mac survey is based on 30-year mortgages with a loan-to-value of 80%. MAXFIELD RESEARCH&CONSULTING,LLC 113