Realtor.com® is offering five predictions
for the coming New Year. Three bode well
for the housing market and none are new.
Most in fact could be dubbed the perennial predictions of the
recovery. They are never really wrong but
end of the year reality never fully validates, only marks progress toward them. Starting
with one of the negative forecasts and perhaps the one most often wrong, writer
Cicely Wedgeworth says:
1. Mortgage Rates Will Head Back Up
Of course the experts said that in
2013 and 2014 as well, especially 2014, but still we sit, above record lows but
blessing our refinanced mortgages and cursing our money markets. Wedgeworth says that the improving economy will
inevitably mean “the honeymoon is over” and we can expect a new paradigm that
will balance job growth with higher but still reasonable interest rates as the
Federal Reserve keeps its promise to increase the federal funds rate in
2015. It has remained near zero since
Realtor.com Chief Economist
Jonathan Smoke hedges a bit on nailing down a date for that increase, saying the
Fed might wait until early 2016; but odds are the rate, which has only an
indirect effect on mortgage interest, will go up in mid-2015 with mortgage
rates rising ahead of the Fed move. “Our forecast for housing assumes the 30-year fixed rate
will reach 5% 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 Set up House
this one before as well. Hopefully it pans out this time. Realtor.com
says this generation, born between 1981 and 2000 are looking at an improved jobs
outlook “and older millennials are planning ahead.” Sixty-five percent of first-time homebuyers
are part of this older group, aged 25 to 34 and of those that are buying, 86
percent indicate that they are motivated by a change in family size – i.e. they
are marrying and starting families.
But while more than two-thirds of
household growth in the next five years is expected to be driven by millennials
they are still facing student loan debt and with tough mortgage guidelines and
often limited credit history Smoke expects they will buy in more affordable
areas in the Midwest and the South.
3. Builders Will Break New Ground
Housing starts in 2014 will only
be slightly more than a million and a disproportional part of the construction
activity was for multifamily units. Smoke
expects the total will improve next year and will feature a lot more
single-family activity. He forecasts a
16 percent increase in starts and that the single-family sector will grow by 21
He offers the caveat that
shortages of labor and building materials will limit any greater increase in
single-family construction, keeping the overall supply tight. MND reminds readers of CoreLogic’s
observation this week that some 40,000 foreclosures each month and the overhanging
foreclosure inventory of over 600,000 homes is still inhibiting activities of new
single-family home builders.
4. Credit Will Continue to Be a Major
It isn’t fair to call the second pessimistic
prediction one that is perennially wrong.
That it continues to be correct is the bad news. As has been the situation for the last four
years strict underwriting rules are keeping consumers, especially younger ones –
those millennials discussed above – from getting mortgages. It is possible that new federal policy
initiatives might relieve the situation in 2015 and it not, then it will become
clear what is holding back the housing recovery.
“If you just look at
the distribution of credit scores, at least 10% of current homeowners with
mortgages would not qualify for a new mortgage today,” Smoke said. He points
out that improving credit access “would be a game changer,” and estimates such
a move would allow 500,000 to 750,000 would-be buyers to become homeowners.
5. We’ll Close Out the Foreclosure
The article predicts that the
coming year will see the end of the nation’s seven year-long odyssey of
foreclosures and short sales. Their
numbers already dwindled substantially in 2014, but Smoke says that while the
end is near nationwide foreclosures will remain a local issue.
situation differs in every market, even every neighborhood,” Smoke added. “Each
has its own unique, long-term trends in home values, which reflects local
demand and supply conditions.”