Housing Market Predictions for 2015: Part 2

Rental markets will stay strong

While first time home ownership will rise in 2015, thanks to households headed by 30-somethings bankrolled by greater job security and rising confidence in the housing market, younger Millennials leaving college dorms and their parent’s homes will keep the rental market robust. Americans in their 20s strongly prefer to rent in urban centers close to jobs and nightlife, locations where rental properties hold their value and are highly sought after. Rental housing inventory should remain about the same, due to the 2014 boom in multi-family construction.

Foreclosures will slow

2014 foreclosure rates were lower than those in 2013 during every month, for a total of 1,256,070 foreclosure filings this year. That’s a 17% downward change from the 2013 total of 1,516,332 filings, according to RealtyTrac.com. Foreclosures rates will continue to decline, and possibly reach pre-recession levels in 2015. The decline of foreclosed properties as a percentage of inventory will help lift and stabilize home prices throughout next year, a sign that the market recovery is picking up momentum it can sustain.

Home prices will rise, but slower than they have been

Home prices vary widely depending on location so no predicted trend will apply to every local housing market. Gains in home values slowed in 2014 when compared to the earlier years of the recovery, but were still positive with a year-over-year change of 4.8% reported in September of 2014 by Case-Shiller Data. Investors who dominated the market in 2012 through early 2014 are pulling out of the market and prices are stabilizing, leading toward a new, more sustainable normal for the housing market. Predictions for overall price gains for 2015 vary depending on the source, but fall in the 3-6% range for most markets. Cities in California and the Southwest may continue to see double digit increases in home values, mirroring their robust and growing job markets.

Affordability will decline

Household income is growing so slowly that the project bump in interest rates combined with a more modest home price gain, will erode affordability for many. Hot urban markets like San Francisco and New York are already out of reach for the majority of the middle class, and that trend may extend to up and coming markets in other parts of California and the Southwest. Markets in Texas, such as Austin, Dallas, and Houston are facing similar issues of high development and rent rates with home prices out of reach for the average household. Home ownership will be more affordable in housing markets with slower rates of recovery and development, like the Midwest and the deep South.

A strong set up for a fuller recovery in 2016

First-time ownership, new single-family construction, and the sale of new homes won’t reach pre-recession levels in 2015. But we will see a stabilizing market that will lift the confidence of households burned by the recession. If 2015 brings a better job market with higher income gains, and the continued development of young Millennial professionals, then 2016 could be the year that officially signals the end of the recovery and back to business as usual.