Six Economists Reach Similar Conclusions on 2015 Housing Outlook

Optimism about the housing market has been a  “misplacedrnnotion”for the last seven years according to Wells Fargo Senior Economist MarkrnVitner, But 2015, he says, could be the year.</b</p

Yun expects the most important trend this year will be some<beasing of underwriting standards which, while not enough, should boost homernsales by 5 to 10 percent.  For Thornbergrnthe most important trend will be the return of retail buyers to the market.  Credit will be looser and there is now $5.5rntrillion more in equity in the market than three years ago which means money tornroll into another home purchase.  He alsornexpects an influx of first-time buyers and an increase in the flaggingrnhomeownership rates across all age groups.   He too sees a pickup in migration as “peoplernhave more confidence in their ability to move and find new work.”  </p

Smoke expects more first time buyers as well, something hernsays that has been missing in the recovery. rnThis will be the result of both demographics – as Millennials reach thernprime home buying ages of 25 to 34 – and economics as job growth continues tornfavor the young.</p

Kolko says demand for apartments will continue strong butrnthe 2014 boom in multifamily construction means more new supply coming on thernmarket which should slow rent increases.</p

When it comes to home prices most see future increases asrnmoderate.  Yun predicts increases of 7 torn10 percent, Zandi, Kolko, and Smoke all see gains under 5 percent.  Thornberg alone expects both home sales andrnprice appreciation to “pick up steam,” with prices gaining “close to doublerndigits” by the end of the year. </p

While all of the economists expect home sales to increase inrn2015 over 2014 they are all over the place when it comes to the scale.  Yun projects existing sales will rise 7 to 10rnpercent and new home sales by 40 percent (off a very low base).  Thornberg thinks sales will rise about 5rnmillion, and Zandi forecasts sales of new and existing homes up by as much asrn20 percent.  Smoke sees an 8 percent risernin existing home sales and 25 percent in new home sales. </p

Yun and Smoke’s enthusiasm regarding the new home segment<bisn't shared by Kolko who thinks it as well as single family constructionrnstarts will continue to lag.  Newrnhousehold formation, he says, will primarily be a boon for rentals as thosernhouseholds save for a downpayment rather than buying right away.  He adds that the vacancy rate for singlernfamily homes is still near recession highs and buyer demand hasn’t recoveredrnenough to support near-normal levels of single family starts or new home sales.</p

Others are more optimistic about residentialrnconstruction.  Thornberg expects singlernfamily permits to increase from the 650,000 expected when 2014 number are in torn750,000 in 2015 and Smoke is looking for 20 percent growth in starts withrnbuilders focusing on more affordable entry-level products even though lot,rnlabor, and material costs will constrain them in that area.  </p

Vitner was the most bullish about this component of thernmarket.  He said, “We now see thernpotential for homebuilding becoming a key upside surprise for the broaderrneconomy in 2015.”  He points inrnparticular to Sunbelt markets as benefiting from this as cities such asrnNashville, Dallas, Charlotte, and parts of Southern California have seen anrninflux of new businesses and new residents in recent years and are riding arnwave of corporate relocations and expansions</p

All five of the men interviewed by RealtyTrac forecastrnhigher interest rates for 2015 but Kolko added, “That’s what we said a year agorntoo, and look how wrong that was.”  Allrnfive also see hope for some easing of credit with most stating how importantrnthat would be for the recovery.  Smokernpointed to actions by the government sector both to clarify representation andrnwarranty guidelines and to lower downpayments for some loans as an indicationrnof intent, but added, “It’s too early to say if these policy efforts and newrnprograms are having an impact on the market, but the timing is perfect to alignrnwith large numbers of millennials moving into home ownership.

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