Housing Market Will Improve in 2015
The lagging sector is new single family homes, where a shortage of skilled labor and buildable lots is holding back construction.
Eight years after heading into the tank, the housing market is finally nearing normal. Come 2015, sales of existing homes are likely to match or top the average for 1999-2002, before home buying mania seized the U.S. A strong rental market already has the construction of multifamily dwellings back to that historical norm.
The big exception is new single-family homes. Both construction and sales of them are running at just 50% of their pre-bubble levels, and they won’t regain those norms until at least 2017. Demand is lagging for a couple of reasons: New homes tend to be more expensive than older ones, limiting the pool of buyers with the credit to buy them. And a paucity of first-time buyers means fewer owners of existing homes are able to sell and move up to a larger, more costly home.
But supply is also a constraint. Builders can’t keep up even with the currently muted level of demand, according to the National Association of Home Builders.. These days, a new home typically sits on the market for just three months versus the four or five of the past. There aren’t enough skilled tradesmen: carpenters, framers and others who left the field in droves when the bubble burst. There are too few build-ready lots. It takes 15-36 months to prepare sites—building roads, water and sewer lines, bringing in electricity and so on, plus clearing regulatory hurdles. In some localities, jumping through the regulatory hoops alone can take up to seven years. Making matters worse, many lenders—gun-shy after the steep plunge in housing prices—have been loath to lend for development of raw land. So only builders with deep pockets are able to create new subdivisions. Though all these pressures are easing, it will take time for them to disappear.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Meanwhile, for the housing market as a whole, several positives are at work: Credit is getting easier. Half of mortgage lenders surveyed expect improved access to credit for lower prime borrowers (FICO scores of 620 to 720) over the next six months. Lenders are becoming more comfortable with the standards for loans that can be off-loaded to Fannie Mae or Freddie Mac, soothing their concerns. (Parallel rules for mortgages that can be securitized and sold will kick in next year.) So there’s more flexibility on debt-to-income ratios, and minimum down payments are sliding from 5% to 3% for Fannie- and Freddie-conforming loans, for example.
Of course, compared with the boom years, mortgages are still much harder to obtain. About half of mortgages still go to borrowers with FICO scores above 740. Though that’s better than the 60% such borrowers accounted for in 2013, it’s far more restrictive than in the early 2000s, when the average borrower score was 680. The Federal Reserve’s July 2014 Senior Loan Officer Opinion Survey on Bank Lending Practices indicated that half of mortgage loan officers considered conditions still to be tighter than average.
Also helping are higher incomes and employment; more consumers can afford purchases. In addition, there are a million more potential home buyers than usual—a backlog of young adults still living with their parents but eager to strike out on their own as soon as possible. Mortgage rates will remain modest, despite a likely slow climb over the coming year.
As for prices, we expect them to increase more slowly in 2015, now that the first pendulum swing from downturn to upturn is over and investors are seeking better returns elsewhere.
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
David is both staff economist and reporter for The Kiplinger Letter, overseeing Kiplinger forecasts for the U.S. and world economies. Previously, he was senior principal economist in the Center for Forecasting and Modeling at IHS/GlobalInsight, and an economist in the Chief Economist's Office of the U.S. Department of Commerce. David has co-written weekly reports on economic conditions since 1992, and has forecasted GDP and its components since 1995, beating the Blue Chip Indicators forecasts two-thirds of the time. David is a Certified Business Economist as recognized by the National Association for Business Economics. He has two master's degrees and is ABD in economics from the University of North Carolina at Chapel Hill.
-
Stock Market Today: Stocks Are Positively Mixed to Open December
Technology led the way Monday as two of the three main equity indexes closed higher.
By David Dittman Published
-
The Best Retail Stocks to Buy This Holiday Season
E-commerce is a growing trend, but most folks still prefer to shop in stores. That makes these dominant retail stocks worth a closer look.
By Louis Navellier Published
-
Don't Sleep on Japan's Economic Transformation
The Letter After almost three lost decades, Japan — one of the world's biggest economies — is finally showing signs of life.
By Rodrigo Sermeño Published
-
Kiplinger Outlook: Telecom Companies Brace for Tough Times
The Letter The telecom industry is entering a new era that threatens profitability. But the coming Trump administration will make it easier for the major players to adjust.
By John Miley Published
-
Start-ups Trying to (Profitably) Solve the World’s Hardest Problems
The Letter More investors are interested in companies working on breakthrough science to tackle huge societal challenges. The field of deep tech has major tailwinds, too.
By John Miley Published
-
Will lower mortgage rates bring relief to the housing market?
The Kiplinger Letter As mortgage rates slowly come down here's what to expect in the housing market over the next year or so.
By Rodrigo Sermeño Published
-
The Big Questions for AR’s Future
The Letter As Meta shows off a flashy AR prototype, Microsoft quietly stops supporting its own AR headset. The two companies highlight the promise and peril of AR.
By John Miley Published
-
China's Economy Faces Darkening Outlook
The Letter What the slowdown in China means for U.S. businesses.
By Rodrigo Sermeño Published
-
AI Start-ups Keep Scoring Huge Sums
The Kiplinger Letter Investors continue to make bigger bets on artificial intelligence start-ups, even for small teams with no revenue. Some backers think a startling tech breakthrough is near.
By John Miley Published
-
Should We Worry About the Slowing U.S. Economy
The Letter With the labor market cooling off and financial markets turning jittery, just how healthy is the economy right now?
By David Payne Published