3 Housing Market Predictions for 2015

Judging by the data, the U.S. housing market is finally beginning to recover from the 2008 meltdown. 2014 was the best year since the real estate slump started, and even if the trends cool down, the job growth and economic recovery are good reason to be optimistic about 2015’s housing market. Realtor.com’s chief economist Jonathan Smoke has three key predictions for the 2015 housing market:

The Foreclosure Crisis Will (Finally) End

According to Smoke, “we are on pace for foreclosure inventories to end 2014 down more than 30%, and next year should see a slightly greater decrease as foreclosures fall to normal levels.” Seven years after the housing bubble burst and foreclosure rates exploded, the situation is finally beginning to normalize. Real estate sales composition has improved, with foreclosures and short sales contributing less to the overall sales picture and sales of newly built properties making a bigger share of the total. This picture will vary from region to region, but nationwide, the sales composition is improving.

Mortgages Rates Will Climb

The rock-bottom mortgage rates we have seen over the past several years will begin to climb as the economy improves. The job growth will lead to higher, but still reasonable, interest rates. The Federal Reserve is expected to increase the federal funds rate in 2015. The rate has hovered near zero since December 2008. Even in the Fed postpones a rate increase, Smoke says that mortgage rates will rise ahead of time in anticipation of the Fed’s move. “Our forecast for housing assumes the 30-year fixed rate will reach 5% by the end of 2015,” explains Smoke, “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.”

Millennial Home Buying

Improved employment prospects for 2015 will begin to pull older Millennials out of the rental slump they have been stranded in since 2008. As they move from survival mode to growth mode, the older Millennials are starting families and will be looking to set up house. Smoke predicts that the majority of first-time home buyers for 2015 will be from this demographic. Smoke says that, “millennials make up around 65% of first-time home buyers,” adding, “of the millennials who are buying a home, 86% indicate that their motivation is a change in family size.” However, with the housing crunch in coastal metropolitan areas and the ongoing credit crunch in the real estate market, Smoke expects millennials to buy in the more affordable areas in the South and Midwest.

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