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10 reasons for a bright real estate forecast in 2015

After a slowdown in the 2014 market, housing analysts and economists have high hopes for 2015. The national real estate industry is expected to build momentum across the board, mostly because of a strengthening economy.

Here’s a recap of some of the real estate forecasts for 2015 compiled by the National Association of Realtors from a variety of resources:

1. Millennial force: Younger professionals are having more luck in the job market, which is expected to help more of them jump into home ownership in the new year. Overall, employment is on the rise, but jobs for Millennials – particularly those aged 25 to 29 – has risen by 3 percent. That’s one percentage point above the nationwide rate. According to some forecasts, Millennials are expected to drive two-thirds of household formations over the next five years. The forecasted addition of 2.5 million jobs next year, as well as an increase in household formation, will likely drive more first-time homebuyers into home ownership, according to realtor.com projections.

2. Home prices stabilize: The double-digit price increases seen in 2013 have slowed, and more stable growth was the trend in 2014. As investors have retreated from the market, so have the rapid home prices in many markets. Home prices are expected to continue to edge up in 2015, with realtor.com predicting a 4.5 percent gain in its 2014 Housing Review.

3. Mortgage rates rising: Interest rates the past few months have been dipping below 4 percent, lowering the borrowing costs of home buyers and refinancing home owners. However, don’t expect the low rates to stick around much longer. Freddie Mac projects mortgage rates will likely average 4.6 percent but could inch up to 5 percent by the end of 2015.

4. Return of the 3 percent down payment: New programs are popping up to help more buyers break into home ownership with lower down payments. In early December, Freddie Mac and Fannie Mae announced conventional loan down-payment programs that will allow qualified first-time buyers to secure a fixed-rate mortgage with a 3 percent down payment.

5. Housing affordability declines: Affordability for homes, based on home-price appreciation and rising mortgage interest rates, will likely fall by 5 percent to 10 percent in 2015. However, the decline in affordability could be offset by an increase in salaries for many households.

6. New-home sales rebound: Single-family new-home starts barely budged in 2014 compared to 2013, and new-home sales remain far from normal levels. But that could finally turn around in 2015. Sales of new homes are expected to rise 25 percent as single-family construction picks up traction in 2015. “As the labor market and broader economy continue to strengthen, we can expect the housing sector to gain momentum heading into next year,” says David Crowe, chief economist for the National Association of Home Builders.

7. Foreclosures recede to pre-recession levels: The number of foreclosures is expected to continue to fall in 2015, but expect them to still be elevated in some pockets across the country – particularly in judicial states where foreclosures must wind through the courts. Foreclosure filings have been on the decline for most of this year. From January through November, foreclosure filings fell about 172 percent compared to the same period one year prior, according to RealtyTrac data.

8. Drop in oil prices will boost housing: Oil prices have plunged 45 percent since June, which could inadvertently provide a lift to the housing market. “Households in the U.S. spend more than $1,800 on energy-related costs annually, and 22 percent of that energy consumption is due to residential real estate,” according to CoreLogic’s 2015 Housing Outlook. “So while the drop in oil prices typically has been linked to a reduction in driving-related expenses, it clearly also reduced energy-related expenses for residential real estate.”

9. Rent rises to outpace home-value growth: Rents likely will continue to rise and an increase in rental costs in 2015 could outpace annual home-price gains. Expect the rental market to remain a “landlord’s market” in 2015, with vacancy rates expected to stay below 5 percent in the new year.

10. Stronger economy leads to greater confidence: A stronger economy will likely lead to more demand for housing in 2015. “Overall, the economy finally appears to be gaining enough momentum to help provide the support that the housing market has needed for stronger recovery,” Sam Khater, deputy chief economist at CoreLogic, noted in the company’s 2015 Housing Outlook.

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