RealtyTrac recently compiled responses from six leading economists who were willing to make predictions for 2015. Each had a slightly different take, but were generally in agreement about the reasons why 2014 didn’t live up to expectations, and why 2015 should be better.
Wells Fargo Senior Economist Mark Vitner made his predictions in the January issue of HousingNewsReport, while staff members interviewed Lawrence Yun, Chief Economist for NAR, Mark Zandi, Chief economist for Moody’s Analytics, Bacon Economics partner Christopher Thornberg, and chief economists for Trulia and realtor.com, Jed Kolko and Jonathan Smoke.
All had predicted that 2014 would bring both growth in the housing market and higher interest rates. All expressed some surprise that falling interest rates didn’t do much to spur growth. However, they pointed out that tighter lending standards weighed heavily on single family housing sales. Lawrence Yun also blamed tight credit for the lack of new construction starts.
Vitner pointed out that 2014 may have paved the way for better things in 2015 because it was a year of “cleaning up the results of previous excesses.” He noted that foreclosures, negative equity positions, and vacancy rates are now nearly back to historical norms. As most are aware, an abundance of foreclosures and short sales on the market tend to depress home prices.
Real estate is always local, so some areas still have an excess of housing inventory while areas with strong job growth have very tight inventories. Supply and demand naturally affects home pricing.
Christopher Thornberg is cautiously optimistic, noting that job growth and improvements in the U.S. economy look promising for our housing market, but ongoing issues in Europe and the collapse in commodity prices at year end could slow growth in the U.S.
Vitner, Yung, and Smoke are enthusiastic over the prediction that 2015 will bring an increase in housing formation as Millenials reach prime home buying ages and job growth continues. Kolko, however, thinks this will primarily benefit the rental market, as many who are forming new households will opt to rent rather than buy. He also expects single family construction starts to lag, as the vacancy rate for single family homes is still high.
Yun and Smoke both expect to see an increase in first time buyers, and Yun expects to see an increase in migration due to increasing employment opportunities. Vitner believes state-to-state migration will also be fueled by baby boomers moving into retirement and an increase in corporate relocations.
While all six agree that home prices will rise, their predictions range from 5% to 10%. They also have differing opinions about the increase in both existing home and new home sales. Predictions range from 7% to 20% for existing homes and 25% to 40% for new homes.
The consensus among the economists who were interviewed is that interest rates will rise in 2015. However, Kolko pointed out that they made the same prediction a year ago and were wrong. They also have hope for easing of credit and point to recent government actions as a good sign, but feel that it’s too early to say whether policy efforts and new programs will have the desired impact.
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