t’s been five years since the financial crisis, and the housing economy continues to steadily improve, paving the way for an even better 2015, CoreLogic’s 2015 Housing Outlook said.
Employment grew at an average of 2% on a year-over-year basis for the three months ending in Nov. 2014, the strongest rate since the three months ending in March 2006, which was the peak employment growth of the last economic expansion.
So looking ahead into next year, here are CoreLogic’s five facts and predictions for 2015:
1. Millennials will start buying
The young Generation Y experienced a strong boost in job growth that will help spur housing in 2015. Millennials posted a 3% improvement in employment growth, which is one percentage point higher than the overall employment growth rate.
“While part of the improvement is the demographic transition of Millennials as they age, it is still very good news, because this age cohort is the key first-time homebuyer segment,” the report said.
2. Oil price drops will benefit housing
“Households in the U.S. spend more than $1,800 on energy-related costs annually and 22% of that energy consumption is due to residential real estate,” CoreLogic said. “So while the drop in oil prices has typically been linked to a reduction in driving-related expenses, it clearly also reduces energy-related expenses for residential real estate.”
Right now, oil prices are down about 45% since June, and this downdraft provides even more economic growth tailwinds heading into 2015.
3. Home price growth will remain muted
Home prices growth is forecasted to be fairly muted going forward as mortgage rates continue to hover around 4%.
“While rates are still very low, home prices are not. It is clear that the low-rate environment has benefited home prices, as price-to-income and price-to-rent ratios are high,” CoreLogic said.
4. Houston will be the most interesting housing market to watch
Houston continues to thrive thanks to its strong energy market and household growth over the past few years.
According to the report, “As of October 2014, the Houston metro area had experienced more residential construction than all but two states, which is a reflection of the city's very strong in-migration and employment growth. While the energy producing sector will be hurt by lower investments due to lower oil prices, Houston is enjoying a demographic dividend that will sustain it.”
5. Housing demand will jump
Overall sales are projected to increase to 5.8 million in 2015, up 9% from 5.3 million in 2014, while total housing starts are expected to reach 1.1 million in 2015, a 14% year-over-year increase.
However, this is still 23% below the 1.45 million average seen over the last 50 or more years.
The 30-year fixed mortgage rate is only expected to rise to 4.3%, up from 4.2% in 2014.
“Overall, the economy finally appears to be gaining enough momentum to help provide the support that the housing market has needed for stronger recovery. The combination of stronger employment growth and especially millennial job growth makes for solid footing for the real estate market,” the report said.