The U.S. housing market will resume its recovery in 2015 after a “disappointing” year as sales accelerate, construction increases and mortgage credit eases, according to a Bloomberg survey of 25 economists and analysts.
New-home sales will jump 16 percent to 510,000 and sales of existing homes will climb 5 percent to 5.21 million, according to the median estimates. Housing starts, including apartments, will increase 15 percent to 1.15 million units. Starts, which last surpassed 1 million in 2007, were on an annual pace of 1.03 million in November, the Commerce Department reported yesterday.
The survey is based on e-mail responses submitted between late November and last week from economists, industry analysts and academics to questions about the housing outlook after a year of slow growth. The results indicate the market will withstand rising interest rates as it enters its fourth year of recovery since the housing crash, even as the pace of new construction and sales remain below long-term averages.
“Our 2015 outlook points to a broad-based but measured housing recovery amid improving consumer sentiment and income growth, slowly easing lending standards, and continued historically low mortgage rates,” said Fannie Mae Chief Economist Douglas Duncan. He called 2014 “a disappointing year for the housing recovery.”
The homeownership rate will drop to 64 percent, the lowest level since 1994, according to the median survey response. The third-quarter rate was 64.4 percent, down from a June 2004 high of 69.2 percent, data from the U.S. Census Bureau show.
“Younger households continue to favor renting over buying,” said Stephen Stanley, chief economist at Amherst Pierpont Securities LLC in Stamford, Connecticut.
Tight mortgage-lending standards, a barrier to more purchases by first-time buyers, will ease, 18 of 24 respondents said. Five said lending terms will remain about the same while Susan Wachter, a professor of real estate at the University of Pennsylvania’s Wharton School, said it will be harder to get a home loan as the Federal Reserve pulls back its stimulus.
“As the recovery continues and the housing market turns from healing to rebounding, lenders may ease up,” Wachter said. “On the other hand, the Fed is ending its support mission. And while there is much discussion of encouraging lending through institutional easing, the fundamental fear factors that drive overlays contributing to tightness have not been revoked. I think the latter will outbalance the former, but it is a close call.”
The average rate for a 30-year mortgage will climb to 4.725 percent by the end of 2015, according to the median of 24 estimates. Last week’s rate was 3.93 percent, close to the lowest level in a year and a half, according to Freddie Mac. The higher interest rate would drive up monthly principal and interest payments on a $400,000 loan to $2,081 from $1,894.
Sales and construction of new housing will remain below the long-term average, even as the economy adds jobs and more of the population born since the early 1980s enter their homebuying years, according to the survey. Estimates of new single-family home sales ranged from a low of 455,000 by Nathaniel Karp, chief U.S. economist for Banco Bilbao Vizcaya Argentaria SA, to a high of 710,000 by Mark Zandi, chief economist of Moody’s Analytics Inc.
“I’m expecting a pick-up in new home sales across all regions and types of new homes,” said Zandi, who predicts a 16 percent increase in existing-home sales. “I also expect sales of entry-level new homes to revive as builders reduce square footage and price points.”
The median new-home price reached a record $305,000 in October, according to the Commerce Department. The higher prices reflect a market shift toward move-up buyers and retiring baby boom buyers who have better finances than first-time shoppers.
“That’s where we see the opportunity,” John Burns, a housing consultant from Irvine, California, said in a telephone interview. “We’re seeing it in urban downtowns. We’re seeing it in college towns. We’re seeing it in military towns like Colorado Springs.”
Zillow Inc. Chief Economist Stan Humphries said he believes that focus may change next year.
“Builders will turn their attention to the bottom half of the market, as millennial buyers begin to buy entry-level homes en masse after years of delays,” he said. “Home-value appreciation will cool off to more sustainable levels, and buyers and sellers alike will benefit from a smoother, more balanced market.”
While the forecasts are mostly positive, this year showed the market doesn’t move in a straight line.
“Momentum in the housing sector from a strong 2012 and 2013 was broken in the first half of 2014 by an interest-rate spike in summer 2013 followed by a harsh winter,” said David Crowe, chief economist of the National Association of Home Builders. Next year “will bring the return of the lost momentum with steady growth in starts and sales in an environment of still-favorable interest rates and improving access to credit.”