Realtor.com® 2015 Housing Forecast: Stage Set for the Return Of First-Time Home Buyers

SAN JOSE, Calif., Dec. 4, 2014 /PRNewswire/ -- Following years of retrenchment among prospective first-time home buyers and the dampening effect it has had on the recovery of the housing market, first-timers will return to the market next year, according to the realtor.com® 2015 Housing Forecast released today. This is among several key developments projected for the coming year by realtor.com®, a leading provider of online real estate services operated by News Corp subsidiary Move, Inc., in a report that includes predictions for home prices, home sales, mortgage rates, and affordability, as well as the Top 10 Markets for Housing Growth. 

"The residual financial effects of recession-driven job losses and subsequent unemployment have impeded millennials' entry into the home-owning market. In 2015, increases in employment opportunities will empower younger buyers to return to the market and fuel the continued housing recovery," said Jonathan Smoke, chief economist for realtor.com®. "If access to credit improves, we could see substantially larger numbers of young buyers in the market. However, given a high dependency on financial qualifications, this activity will be skewed to geographic areas with higher affordability such as the Midwest and South."

Realtor.com®'s Top 5 Housing Predictions for 2015

1. Millennials will drive household formations: Both population and households have grown at a slightly higher pace in 2014 and this trend will continue in 2015 with modest improvement over this year's increases. Households headed by millennials will see significant growth as a reflection of economic gains. Millennials will also drive two-thirds of household formations over the next five years. Next year's addition of 2.75 million jobs and increased household formation will be the two key factors driving first-time buyer sales. 
2. Existing home sales will increase +8%: Existing home sales will grow as more buyers enter the market motivated by a clear belief that both rates and prices will continue to rise. The increase in home sales year-over-year will be similar to 2012, but this time the composition of properties sold will be more normal with minimal levels of distressed properties. While the majority of housing activity next year will be driven by baby boomers preparing for retirement, millennials will account for 65 percent of first-time home buyer sales in 2015. 
3. Home prices will gain +4-5%: Low inventory levels and demand driven by improved employment opportunities will push home prices up next year. While first-time home buyers have many economic factors working in their favor, increasing home prices will make it more difficult to get into high priced markets such as San Francisco and San Jose, Calif.  As a result, first-time home buyer activity is expected to concentrate in markets with strong employment and affordability, such as Des Moines, Iowa; Atlanta and Houston. 
4. Mortgage rates will end the year at 5%: Mortgage rates will increase in the middle of 2015, as the Federal Reserve increases its target rate by at least 50 basis points before the end of the year. Thirty year fixed rate mortgages will reach 5 percent by the end of 2015. One year adjustable rate mortgages (ARMs) will rise minimally. Lower ARM interest rates will influence an uptick in buyer interest for adjustable and hybrid mortgages. While still at historic lows, rate increases will affect housing affordability for first-timers trying to break into the housing market and will be another factor pushing them to less expensive locales. 
5. Home affordability will decrease 5-10: Affordability will decline in 2015 by 5-10 percent, based on home price appreciation and increasing mortgage interest rates. This decline will be somewhat offset by increasing incomes. When considering historical norms, housing affordability will continue to remain strong next year.

Realtor.com®'s outlook for gross domestic product (GDP) and home sales and prices is more optimistic than the National Association of Realtors®' forecast, which projects existing-home sales to rise 5 to 7 percent and home prices to increase 3 to 4 percent, based on GDP growth of 2.5 to 2.8 percent.

"The growth expected in 2015 is widespread, but as we put together our forecast, 10 local markets stood out as especially primed and ready for significant acceleration across housing metrics in 2015," Smoke said. "The markets on this list range from big cities with older housing stock, big and mid-size cities with substantial levels of new construction, and up and coming markets appealing to young professionals for their job growth and high affordability. Los Angeles and Washington, D.C., were selected for their anticipated increases in home sales and household formation. While Des Moines may seem like an odd addition, its incredibly high affordability and high levels of home ownership among millennials set the stage for strong housing performance next year."

Realtor.com®'s Top 10 Markets for Housing Growth in 2015

Realtor.com® Forecast for Key Housing and Economic Indicators

On Dec. 9, 2014 at 3 p.m. ET Jonathan Smoke, chief economist for realtor.com®, will host a Google Hangout discussing his expectations for mortgage rates in 2015. To join the hangout, sponsored by PrimeLending, click here: http://marketing.realtor.com/2015HousingTrends/.

About the realtor.com® Economic Forecast

Realtor.com® produces an economic and housing forecast covering a 3-year time horizon each quarter.  The forecast uses a time series covering more than 1,400 economic and housing variables and their associated historical trends.  The forecast is produced using a stochastic econometric model structured to leverage the relationships among the historical variables using best-fit regression techniques.  In addition we incorporate specific proprietary assumptions about conditions that could enable or restrict economic and housing performance that may not be reflected in the time-series trend.  We also review our forecast against the current economic scenarios published by Moody's Analytics and several respected third party industry forecasts before finalizing our specific quarterly view.  The forecast is first produced at a macro level for the U.S. and is then applied to 366 Metropolitan Statistical Areas.

Supporting Resources

• Read more about realtor.com®
• Follow @realtordotcom on Twitter
• Like realtor.com® on Facebook
• Download realtor.com® mobile apps

About Move, Inc. and realtor.com^®

Move, Inc., a subsidiary of News Corp, is a leading provider of online real estate services. Move operates the realtor.com^® website and mobile experiences, which connect people to the most important and accurate information they need to find their perfect home and to the REALTORS^® whose expertise guides consumers through buying and selling. As the official website of the National Association of REALTORS^®, realtor.com^® empowers consumers to make smart home buying, selling and renting decisions by leveraging its direct, real-time connections with more than 800 multiple listing services (MLS) via all types of computers, tablets and smartphones. In addition to the industry's most comprehensive and accurate information, Move's network of websites provides consumers a wealth of innovative tools, including Doorsteps^®, Moving.com™, SeniorHousingNet^SM  and others. Move supports real estate agents and brokerages by providing many services to grow their businesses, including ListHub™, the nation's leading listing syndicator and centralized intelligence platform for the real estate industry; TigerLead^®; Top Producer^® Systems; and FiveStreet^SM; as well as many free services. Move is based in the heart of Silicon Valley – in San Jose, Calif.  

Forward-Looking Statements

This news release may contain forward-looking statements, including information about management's view of Move's future expectations, plans and prospects, within the safe harbor provisions under The Private Securities Litigation Reform Act of 1995. These statements involve known and unknown risks, uncertainties and other factors, which may cause the results of Move, its subsidiaries, divisions and concepts to be materially different from those expressed or implied in such statements. These risk factors and others are included from time to time in documents Move files with the Securities and Exchange Commission, including but not limited to, its Form 10-Ks, Form 10-Qs and Form 8-Ks. Other unknown or unpredictable factors also could have material adverse effects on Move's future results. The forward-looking statements included in this press release are made only as of the date hereof. Move cannot guarantee future results, levels of activity, performance or achievements. Accordingly, you should not place undue reliance on these forward-looking statements. Finally, Move expressly disclaims any intent or obligation to update any forward-looking statements to reflect subsequent events or circumstances.

Media Contact: Lexie Puckett, +1 805-557-3151, [email protected]

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/realtorcom-2015-housing-forecast-stage-set-for-the-return-of-first-time-home-buyers-300004723.html

SOURCE realtor.com