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5 Predictions for Housing in 2015

by devteam December 6th, 2014 | Share

Realtor.com® is offering five predictionsrnfor the coming New Year.  Three bode well</bfor the housing market and none are new. rnMost in fact could be dubbed the perennial predictions of thernrecovery.  They are never really wrong butrnend of the year reality never fully validates, only marks progress toward them.    Startingrnwith one of the negative forecasts and perhaps the one most often wrong, writerrnCicely Wedgeworth says:</p

1.      Mortgage Rates Will Head Back Up</p

Of course the experts said that inrn2013 and 2014 as well, especially 2014, but still we sit, above record lows butrnblessing our refinanced mortgages and cursing our money markets.  Wedgeworth says that the improving economy willrninevitably mean “the honeymoon is over” and we can expect a new paradigm thatrnwill balance job growth with higher but still reasonable interest rates as thernFederal Reserve keeps its promise to increase the federal funds rate inrn2015.  It has remained near zero sincernDecember 2008.  </p

Realtor.com Chief EconomistrnJonathan Smoke hedges a bit on nailing down a date for that increase, saying thernFed might wait until early 2016; but odds are the rate, which has only anrnindirect effect on mortgage interest, will go up in mid-2015 with mortgagernrates rising ahead of the Fed move.  “Our forecast for housing assumes the 30-year fixed raternwill reach 5% by the end of 2015,” Smoke says. rn”The one-year adjustable rate will likely rise less if much at all, andrnaccordingly, we are likely to see a shift into more adjustable and hybridrnmortgages over fixed.”</p

2.      Millennials Will Set up House</p

We’ve heardrnthis one before as well.  Hopefully it pans out this time.  Realtor.comrnsays this generation, born between 1981 and 2000 are looking at an improved jobsrnoutlook “and older millennials are planning ahead.”  Sixty-five percent of first-time homebuyersrnare part of this older group, aged 25 to 34 and of those that are buying, 86rnpercent indicate that they are motivated by a change in family size – i.e. theyrnare marrying and starting families.   </p

But while more than two-thirds ofrnhousehold growth in the next five years is expected to be driven by millennialsrnthey are still facing student loan debt and with tough mortgage guidelines andrnoften limited credit history Smoke expects they will buy in more affordablernareas in the Midwest and the South.</p

3.      Builders Will Break New Ground</p

Housing starts in 2014 will onlyrnbe slightly more than a million and a disproportional part of the constructionrnactivity was for multifamily units.  Smokernexpects the total will improve next year and will feature a lot morernsingle-family activity.  He forecasts arn16 percent increase in starts and that the single-family sector will grow by 21rnpercent.  </p

He offers the caveat thatrnshortages of labor and building materials will limit any greater increase inrnsingle-family construction, keeping the overall supply tight.  MND reminds readers of CoreLogic’srnobservation this week that some 40,000 foreclosures each month and the overhangingrnforeclosure inventory of over 600,000 homes is still inhibiting activities of newrnsingle-family home builders.  </p

4.      Credit Will Continue to Be a MajorrnFactor</p

It isn’t fair to call the second pessimisticrnprediction one that is perennially wrong. rnThat it continues to be correct is the bad news.  As has been the situation for the last fourrnyears strict underwriting rules are keeping consumers, especially younger ones -rnthose millennials discussed above – from getting mortgages.  It is possible that new federal policyrninitiatives might relieve the situation in 2015 and it not, then it will becomernclear what is holding back the housing recovery.  </p

 “If you just look atrnthe distribution of credit scores, at least 10% of current homeowners withrnmortgages would not qualify for a new mortgage today,” Smoke said. He pointsrnout that improving credit access “would be a game changer,” and estimates suchrna move would allow 500,000 to 750,000 would-be buyers to become homeowners. </p

5.      We’ll Close Out the ForeclosurernCrisis</p

The article predicts that therncoming year will see the end of the nation’s seven year-long odyssey ofrnforeclosures and short sales.   Theirrnnumbers already dwindled substantially in 2014, but Smoke says that while thernend is near nationwide foreclosures will remain a local issue.  </p

“Thernsituation differs in every market, even every neighborhood,” Smoke added. “Eachrnhas its own unique, long-term trends in home values, which reflects localrndemand and supply conditions.”

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About the Author

devteam

Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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