February 11th, 2015 3:39 PM by Melanie Mitchell - Team Lead/Listing Specialist
With the door closing on 2014, economists are starting to tout their housing forecasts for next year. Count Realtor.com chief economist Jonathan Smoke among the more conservative optimists.
Mr. Smoke, like many others, sees the housing market gaining significant upward momentum next year, but perhaps not rising as steeply as some of his peers do. His main reasons for a somewhat-rosy outlook: The gradual return of first-time buyers and an increase in home construction.
“Part of my assumption here is that you will start to see the impact of the first-time market recovering next year,” said Mr. Smoke, who intends to release his 2015 forecast on Thursday. “That will benefit new-home growth. But it’s also a key reason why we’re assuming the new-home market won’t quite have the recovery that other people are forecasting.”
Realtor.com is a real-estate listing site operated by Move Inc. for the National Association of Realtors. News Corp., owner of The Wall Street Journal, bought Move Inc. this year.
Specifically, Mr. Smoke predicts that new-home sales will increase by 25% in 2015 from their current rate of roughly 440,000 for 2014. While heady, that 25% projection actually falls short of the 28% gain foreseen by the National Association of Home Builders and the stratospheric 41% gain predicted by the National Association of Realtors.
Mr. Smoke has positioned himself as a restrained optimist for several reasons. He, like others, sees the improving economy bringing more first-time and entry-level buyers into the market. Many such buyers have been sidelined in recent years by tepid job and wage growth, strict mortgage-qualification standards and mounting student debt. Each aside from student debt is starting to improve.
He also sees more builders starting to construct a larger volume of less-expensive housing, after spending the past three years catering mostly to better-heeled buyers purchasing more expensive homes. Still, he doesn’t foresee the big gains–some might call it runaway demand—that others envision. That’s mainly because builders simply don’t have the capacity to handle such an increase in just a year.
“I’m pretty skeptical of, even if the demand were there, the ability to deliver more than 25% growth because of lot availability,” he said. “I’m not sure that builders have the communities, lots and products that will work from a pricing perspective” even if entry-level demand soars.
Other of Mr. Smoke’s predictions for 2015 include an 8% gain in sales of existing homes and home-price appreciation of 4% to 5%. He foresees an increase in mortgage rates to 5% by the end of 2015 from their current level at roughly 4%. And he forecasts a 21% gain in construction starts of single-family homes, which goes hand-in-hand with his prediction of a gain in sales of those homes.
One thing could turn Mr. Smoke, and many other economists, into more enthusiastic optimists: A steady loosening of mortgage qualification standards. Federal Housing Finance Agency director Mel Watt has promised as much. But builders, Realtors and mortgage originators are waiting to see the directive play out in the broader market.
“If so, that could potentially produce in and of itself a 10% growth in sales,” Mr. Smoke said. “If credit really loosens, my forecast is going to be wrong” by falling short.
Others are a tad more pessimistic about home sales next year. Jed Kolko, chief economist of real estate website Trulia Inc., said he foresees a possibility of new-home sales and construction starts falling short of expectations next year. He noted that household formation remains tepid, at least partly because young adults now are more likely to move out of their parents’ house and into rental apartments than to immediately buy their first home.
There also is ample competition against the new-home market. The vacancy rate for single-family homes remains above historical averages, meaning there still are quite a few vacant homes to be purchased for quick and relatively inexpensive occupancy. In addition, Trulia foresees more homeowners putting their homes on the market next year.
Trulia on Wednesday released the results of a survey it conducted last month of 2,008 U.S. respondents. In regard to their outlook for 2015, the largest percentage of respondents–36%—said next year will be better than 2014 for selling a home.
“So we could see a big increase in existing home inventory” listed for sale, Mr. Kolko said. “In some markets, that could compete with new-home inventory.”