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Residential Department: DataDecoded: February 2015



As 2015 begins to unfold, what can we expect in the housing market? This year likely will feel eerily like a repeat performance of 2014. To paraphrase former Yankee great Yogi Berra, it will be “déjà vu, all over again.”

After several years of double-digit growth, home-price appreciation began to moderate this past year. We can expect home prices to continue on the same path this year, with appreciation between 3 percent and 4 percent. We may see some slight dips in markets that had the highest appreciation over the past few years, like San Francisco; San Jose, California; and Austin, Texas, or possibly in markets that are heavily dependent on energy revenues such as Texas, North Dakota, South Dakota and Pennsylvania, if oil prices continue to drop.

Lack of inventory will remain a problem for prospective homebuyers. This will be particularly evident at the low end of the market, where there’s virtually no new-home inventory and existing-home inventory is lower than it should be because millions of borrowers are still underwater on their loans. Relatively weak economic recovery has also led to wage stagnation — and even deflation — among many middle-class workers, making affordability a challenge. 

Credit also remains tight. Despite all the talk about standards loosening up, less than 5 percent of loans in third quarter of 2014 were non-Qualified Mortgages (non-QMs). The new 3 percent downpayment loan programs from Fannie Mae and Freddie Mac will probably just replace some Federal Housing Administration loans, which are more expensive because of their high insurance premiums, rather than opening up the credit box. Because of these headwinds, 2015 sales of existing homes will probably be about the same as this past year: between 4.9 million and 5.1 million.

When it comes to new homes, there isn’t any empirical data to support the notion that builders will shift gears and start building lower-priced homes — at least not in large numbers. Housing starts remain weak and more heavily weighted toward multifamily units than normal. Permits have been lackluster, as well. As long as volume stays low, it’s unlikely that the mix of properties will shift dramatically from higher-priced to lower-priced units. There may not even be enough demand to warrant a massive uptick in building homes. Even if there was enough demand, financing for builders is still tight. In addition, the supply chain is somewhat constrained and there’s a shortage of skilled labor. Given that, it’s unlikely that new-home sales will much exceed 500,000 units.

Normally, when inventory is this low, we’d expect it to be a seller’s market. But demand isn’t particularly strong right now either, so nationally it is unlikely that the market will tilt heavily one way or the other. This year, the buyer/seller advantage may be experienced mostly on a market-by-market basis.

A lot of the buying activity experienced in the past few years has been done by investors and by cash buyers. The cash-buyer phenomena is a combination of the high level of investor activity and owner-occupants unable to get loans or getting so frustrated with the process they use cash instead. Although the latter may have largely run its course, investor activity — especially foreign-investor activity — will likely remain strong. More individual investors may use financing, however, now that some of the bigger hedge funds have begun offering financing geared specifically toward this audience.

Low inventory, investor and cash buyers, and a mix of home sales skewed toward higher-priced properties can make affordability an issue for prospective buyers. Rising interest rates can add to the problem, but it’s still likely that we’ll see rates rise at least slightly by the end of this year, probably peaking at just below 5 percent, which shouldn’t have a major impact on the market from a consumer standpoint, but may be enough to encourage lenders and bring back some private capital to the secondary market. In turn, this could prime the pump for increased levels of nonconforming, non-agency loans by nonbank lenders.

This may not be a great year, but it won’t be an awful year, either. It can be just another small step in an incredibly long road to recovery. 


Rick Sharga is executive vice president of Ten-X. He is one of the country’s most frequently quoted sources on real estate, mortgage and foreclosure trends. Sharga has appeared on top television shows and briefed government organizations and corporations on foreclosure trends. He also conducts foreclosure training for leading real estate organizations. Before Ten-X, Sharga was an executive vice president and primary spokesman for Carrington Mortgage Holdings. Reach Sharga at

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