While a 2015 housing industry forecast released Dec. 3 by real estate site Trulia noted that the Great Recession is still casting a shadow over the housing market, it also revealed that three of five major measures for tracking housing health are getting back to normal.
1. Home price gains will slow but affordability will worsen
Price gains slowed in 2014 and Trulia predicted more of the same in 2015. The slowdown has been especially sharp in metros that had a severe housing bust followed by a big rebound. Now, prices nationwide are just 3 percent undervalued relative to fundamentals, which leaves fewer bargains and little room for prices to rise without becoming overvalued. Also, with consumers expecting 2015 to be a good year to sell a home, more properties could be foisted on the market and further cool prices. Despite slowing home price gains, affordability could worsen in 2015 because even small price increases could outpace income growth and because the strengthening economy could increase mortgage rates.
2. The rental market will stay strong
Rental supply will increase in 2015, and demand will stay strong, driven by young people moving out of their parents’ homes; recent job gains for 25-34 year-olds should lead to this rise in household formation. The 2014 apartment construction boom will mean more supply in 2015 as multifamily properties are completed. The expected surge of renters probably will cause the homeownership rate to fall.
3. Single-family starts and new home sales could disappoint
While apartment construction is breaking records, single-family housing starts and new home sales are still only half of normal levels — although they’re expected to improve in 2015. The vacancy rate for single-family homes is still near its recession high, which discourages new construction, but as the apartment construction boom has shown, when there’s demand, builders will build. The bottom line is that buyer demand for single-family homes hasn’t recovered enough to support near-normal levels of single-family starts or new home sales.
