When it comes to the housing market, 2015 may be the year
first-time home buyers make a comeback. With rents rising faster than incomes,
many Millennials are expected to start looking to buy homes of their own. What
they will find are much more favorable conditions than they have seen in years,
including lower down payment mortgages, looser lending standards and a bigger
selection of homes to choose from. Here are four housing market trends
economists and other industry experts expect to see in the year ahead.
1. Looser lending
standards
Conspicuously absent from the housing market over
the past five years have been first-time home buyers. But in early December,
Fannie Mae and Freddie Mac put new lending guidelines in place and
started offering 3% down payment mortgages that will make it easier
for more first-time buyers to qualify for a mortgage.
Add to that a strengthening job market, and prospects look
much brighter for young home buyers. According to the Mortgage Bankers
Association, sales of new homes are expected to climb by more than 13% in 2015,
while existing home sales are expected to increase by 5%. A spike in the number
of first-time home buyers should spark a chain reaction by enabling existing
homeowners to sell their homes and buy more expensive ones.
2. There will be more
homes to choose from
Builders are ramping up production of smaller homes to
accommodate these new entry-level buyers, said Stan Humphries, chief economist
for Zillow.
Homebuilder D.R. Horton formed Express Homes, to build
no-frills homes ranging in price from $120,000 to $150,000, about half the
average price of the homes it normally builds. Other builders, like LGI Homes
and KB Homes are also targeting first-time buyers.
3. Home prices will
become more affordable
With so many new homes slated to come onto the market, the
supply is expected to loosen up and take some pressure off of home prices. That
should improve affordability in some of the more out-of-reach metro area
markets like Washington, D.C., San Jose, Calif., and Seattle.
Other economists expect to see small gains. Jed Kolko
expects increases, but only in low single-digit percentages because there will
be fewer big institutional investors buying up properties and propping up
prices.
4. Mortgage rates
will move higher -- at some point
If there's any single market trend that real estate industry
pros have gotten consistently wrong lately, it's the direction of mortgage
rates. But most do expect rates to rise at some point in 2015. In December, the
Federal Reserve signaled that it would not raise the Federal Funds rate until
the summer of 2015 or perhaps even later.
Keith Gumbinger of HSH.com, a mortgage information provider,
expects mortgage rates to peak next year at about 4.75% for a 30-year fixed
rate mortgage. He predicts rates to top out at 4.5%, which should do little to
affect buyers. An increase to 4.5% from the current 4% adds about $60 a month
to mortgage payments on a loan with a principal balance of $200,000.
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