BY BARRY POTOKER
No one can really predict the future, but the
past few years have truly seen the building and
real estate industries come storming back. So
where does it go from here?
According to The National Association of Home
Builders/Wells Fargo, builder sentiment gauge,
an indicator of industry confidence, recently advanced
to 58, matching the second-highest level
since 2005. Furthermore, with mortgage rates still
hovering near 4 percent and unemployment at a
six-year low, more Americans have the confidence
to enter the market.
At the same time, wage growth has been lackluster
this past year and property values have
climbed, making home ownership a challenge for
some first-time buyers.
Forbes magazine’s panel of experts on the housing
industry concludes (and this seems to make
sense) the housing market has been shifting out
of rapid recovery and into a more stable phase
that economists are calling the new normal. Here
are 10 things housing experts expect to see in 2015:
1. Prices will rise more slowly.
Housing price gains slowed dramatically in 2014
and are expected to continue on that trajectory
into 2015. Easing housing inventory levels and
the exit of investors from the market are helping
to put the brakes on home price escalation. Zillow
predicts home prices will rise just 2.5 percent
in 2015 while Realtor.com predicts an annual gain
of between 4-5 percent.
2 . Affordability will worsen.
Unfortunately slowing home prices doesn’t mean
that home ownership will become more affordable.
Prices will probably rise faster than incomes, and
as mortgage rates increase, affordability will erode.
Realtor.com predicts that home affordability
will decrease by 5-10 percent in 2015.
3. The buying frenzy will fade.
Good news for regular people: the homebuying
process should get a little less hectic in 2015,
thanks to eased inventory and credit, plus the
exit of investors from the market. As prices rose
in 2014, more people put their homes up for sale.
More inventory will continue to come online,
putting the competitive pressure on sellers for
a change.
This more balanced market will be smoother
sailing for everyone, both for buyers in search of
a competitive advantage, and for sellers who turn
around and become buyers themselves.
4. Mortgage interest rates will rise.
The Mortgage Bankers’ Association predicts
that rates will rise to 5 percent by the end of
2015 and Freddie Mac’s chief economist Frank
Nofthaft expects a more cautious average of 4.5
percent in 2015.
The largest group of homebuyers in the U.S., predicts
Zillow, “Roughly 42 percent of Millennials say
they want to buy a home in the next one to five
years, compared to just 31 percent of Generation
X. As this generation matures, they will become a
home-buying force to be reckoned with.”
6. Rent increases will outpace home value growth.
In 2015 many 25-34-year-olds will form new
households, but instead of buying they’ll rent,
predicts Truliaw. In part, this forecast is based on
demographic factors and because many of them
will still need to save for a down payment. These
factors will continue to push the demand for multifamily
housing and rents will keep rising by about
3.5 percent in 2015.
7 . Multi family will reign.
This year we’ve seen a boom in multi-family construction.
Meanwhile, forecasts predict a boost
in 2015 on groundbreakings of new single-family
homes (NAHB: 837,000, Fannie Mae: 783,000,
and Wells Fargo: 770,000), as well as new home
sales (NAR: 620,000; NAHB: 547,000).
Trulia’s research indicates that more people
will try to sell their homes next year (and Realtor.com predicts that existing, or previously owned,
home sales will grow 8 percent in 2015). The
entry of these previously owned homes onto the
market could suppress the demand for more expensive
newly constructed homes. So builders may
very well have another strong year meeting the
demand for apartments and multifamily housing.
8. Builders shift to cheaper homes.
In recent years, builders have chosen to build
fewer, more expensive homes instead of more, less
expensive homes. The trend–driven in part by a
limited supply of land during the recovery-has left
a price gap between more expensive new homes and less expensive existing homes, keeping new
home sales around or lower than the 450,000
per year mark since the recession. Most analysts
agree that new home sales will top the 500,000
mark in 2015.
9. Foreclosures will match pre-recession levels.
From January through November 2014, there were
1,256,070 foreclosure filings in the U.S., according
to the firm RealtyTrac, down about 17.2 percent
from the same period the prior year. Watch for
2015 to close out the foreclosure era.
10. Markets driven by fundamentals.
Next year the housing market will be driven
more by underlying economic fundamentals-job
growth, incomes, household formation-than by
macro-economic factors such as national price
crashes.
In our organization, we are truly optimistic
about the future of the local building industry
as it continues to stabilize and grow in our area.
Our builders, remodelers and suppliers, are still
as busy as they have been over the past 3-4 years
since the recovery began.