More building, more buying, higher rates among 2015 predictions

Posted by Tom Kalinski Founder RE/MAX of Boulder on Monday, January 19th, 2015 at 7:33am.

Experts are feeling better about 2015’s housing market after 2014 proved the best year of the U.S. economic recovery since the recession of 2008-2009, according to Realtor.com.

In fact, the organization predicts that the improving economy will fuel job and income growth, providing positive market conditions for home owners and potential home buyers.

Here are five predictions for the 2015 housing market, according to Realtor.com Chief Economist Jonathan Smoke:

1. Mortgage rates will rise

When the economy improves, it is likely mortgage rates will increase again - establishing a relationship that balances job growth with higher (yet still reasonable) interest rates.

The Federal Reserve plans to increase the federal funds rate within the year, and that will have an indirect but significant impact on mortgage rates. The rate has remained near zero since December 2008, Realtor.com reports.

Although the Fed may wait to raise the rate until early 2016, Smoke suggests the increase will come in mid-2015, and mortgage rates will increase ahead of the Fed’s move.

“Our forecast for housing assumes the 30-year fixed rate will reach 5 percent by the end of 2015,” Smoke says. “The one-year adjustable rate will likely rise less if much at all, and accordingly, we are likely to see a shift into more adjustable and hybrid mortgages over fixed.”

2. Millennials will start buying homes

Despite challenges in the job market, those born between 1981 and 2000 are facing brighter employment prospects with an improving economy, and many are planning to enter the housing market.

According to Realtor.com, approximately 65 percent of first-time home buyers are part of that group of people between 25 and 34 – the age many get married and start families, according to Smoke. “Of the millennials who are buying a home, 86 percent indicate that their motivation is a change in family size,” he says.

However, because of tough credit qualification standards and limited credit history, they are more likely to buy more in affordable areas in the Midwest and the South, Smoke notes.

Millennials are expect to contribute more than two-thirds of household growth in the next five years, he adds. This generation is also bigger than the baby boomer generation, with its youngest members turning 15 this year, so its impact on the real estate market is just beginning.

3. Builders will build again

Despite the construction of multifamily homes, total housing starts barely broke 1 million in 2014, but Smoke believes the pace of new home construction will pick up in 2015 and shift focus back to detached units.

“We are forecasting 16 percent growth in starts, driven now more by growth in single-family starts, which we are expecting to grow 21 percent,” he says.

However, a shortage in labor as well as building material will limit additional growth in single-family construction and keep overall supply tight.

“The constraints on new construction supply factor into our assumptions about existing home sales growth and overall tight supply of homes for sale,” Smoke adds.

4. Credit remains a player

Strict mortgage qualification standards have kept many consumers – especially younger ones – from buying a home with a bank loan for the last four years.

Though those standards may relax some this year with various new federal housing policy initiatives, failure to do so will hold back the housing market.

“If you just look at the distribution of credit scores, at least 10 percent of current homeowners with mortgages would not qualify for a new mortgage today,” Smoke says.

He notes that opening credit up would allow between 500,000 and 750,000 potential buyers to move forward with their dream of home ownership.

5. Books on foreclosure crisis will close

This year will see the end of the crisis that began seven years ago, when the housing bubble burst and foreclosures skyrocketed.

Smoke says that it is likely national foreclosures in 2014 will be 30 percent fewer than 2013, and 2015 should see another decrease as foreclosures fall to more normal levels.

However, not every local market will reflect national trends.

“The situation differs in every market, even every neighborhood,” Smoke explains. “Each has its own unique, long-term trends in home values, which reflects local demand and supply conditions.”

 

Tom Kalinski 
Owner and Founder
RE/MAX of Boulder
303-441-5620
tomkalinski33@gmail.com

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