What Might 2015 Hold for the Housing Market?

04_House_Construction

 

Like weather forecasts, projections made for any market have to be taken with a grain of salt. But some predictions made for the housing market in 2015 come from credible sources, backed by sound reasoning.

While these prognosticators may not agree 100% on the numbers, they do share several key ideas.

Mortgage interest rates will rise

Of course, economists made this same prediction for 2014. Instead, interest rates dropped from 4.42% to under 4.0% for the year. What makes this year different? With the Federal Reserve indicating the end of rate “easing” since the recession, it’s a good bet that we can expect a fund rate hike. Mortgage rates will likely follow.

Frank Nofthat of Freddie Mac looks to see interest rates average around 4.5%, while the Mortgage Bankers Association expects a less conservative average of 5.0% for 2015. The rise in interest rates is a natural by-product of an improving economy and employment growth.

Millennials become the largest group of homebuyers

With this year, the torch of leading home purchasers passes from Gen-Xers to the Millennials, according to Stan Humphries at Zillow. Their “lack of home-buying activity” thus far is the result of delayed marriage and parenthood rather than lack of interest in buying a home, according to Humphries.

The leading edge of the Millennials is heading into their mid-thirties. Jonathan Smoke at Realtor.com expects over two-thirds of household growth in the next five years to come from this generation.

Home price increases will slow

“Easing housing inventory levels and the exit of investors from the market” will be key to much lower housing price gains in 2015, says a Forbes article from December. During the early period of economic recovery, real estate investors accounted for a large portion of home sales. But that rapid-recovery period is over. We are, as Forbes claims, moving “into a new normal.”

Estimates of the 2015 housing price increase vary between 2.5% and 5%.

Foreclosures will fall back to normal levels

As 2014 came to an end, Realtor.com expected the 2014 foreclosure inventories to be over 30% lower than in 2013. This is a good sign that the foreclosure crisis that resulted from the collapse of the housing bubble in 2007-2008 is reaching its end. Short sale numbers are dwindling as well.

Rent increases will likely reign

In fact, Zillow’s Humphries sees rent increasing by 3.5%, as opposed to the 2.5% increase he predicts in home values.

There are several reasons for this. First, this year probably won’t see an end to tighter loan qualification restrictions. This makes obtaining mortgages more difficult for prospective homebuyers, particularly those among the Millennials. Add to that the fact that many potential home purchasers in this group still need to save up a down payment.

The result is that the demand for rental property/apartments continues to outpace the demand for single-family homeownership, at least for a while.

Things will change

We’ve all heard it: “The only thing constant is change.”

Predictions are based on assumptions and ever-shifting trends. Lots of factors can have a direct or indirect effect on the housing market in 2015.

A change in federal housing policy that eased lending restrictions could certainly change the market’s direction. So could better-than-expected job and income growth. Even a healthier public perception of the health of the economy can shift activity.

Given ongoing rent increases and a better housing outlook for 2015, making a home purchase may once again seem like the best option. A few more change factors, like relaxed loan restrictions, might make this almost inevitable.

 

© 2015, The McDowell Team at Keller Williams Select Realtors

 

For more information, see:

Forbes.com, “Housing Outlook 2015: 11 Predictions From The Experts”: http://www.forbes.com/sites/erincarlyle/2014/12/18/housing-outlook-2015-11-predictions-from-the-experts/, December 18, 2014

Realtor.com, “5 Housing Market Predictions for 2015”: http://www.realtor.com/news/5-housing-market-predictions-2015/, December 4, 2014

Realtor.com, “Older Millennials Are the Rock Stars of Real Estate”: http://www.realtor.com/news/older-millennials-important-real-estate/?iid=rdc_news_article_editors-picks, March 20, 2015

Bloomberg.com, “Rising Rents Are Finally Forcing Millennials to Buy Houses”: http://www.bloomberg.com/news/articles/2015-03-25/millennials-start-shift-to-homeownership-as-rents-soar, March 25, 2015

Bloomberg.com, “Real Estate Recovery in U.S. Uneven as Housing Starts Fall”: http://www.bloomberg.com/news/articles/2014-12-16/housing-starts-in-u-s-exceed-1-million-pace-for-third-month, December 16, 2014

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