Housing Market Picture Hasn’t Changed but Fed’s Interest Rate Strategy Might

What’s happening in the housing market?  The answer to that question hasn’t changed much in the past several months. 

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The year began with a strong jolt of positive news: Employers added 252,000 jobs in December, beating estimates, and the unemployment rate declined to 5.6 percent, its lowest level since June, 2008. But wages declined for the first time in more than a year and the labor participation rate slumped, as well, casting a “yes-but” shadow over the otherwise encouraging report, and leading some analysts to predict that the Federal Reserve will delay its plans to begin raising interest rates – this despite a robust third quarter rate of economic growth (5 percent) that was the fastest in more than a decade.

Consumer confidence also seems to be increasing. More than half of the respondents to a CNN/ORC poll rated the economy as “somewhat” or “very” good – the first time in seven years a majority of respondents have landed on the optimistic side of the equation.

“Uncertain” about Housing

That confidence doesn’t extend to the housing outlook, however. Fannie Mae’s December National Housing Survey found consumer sentiment “moving sideways,” Doug Duncan, Fannie’s chief economist, reported, with prospective homebuyers “not yet convinced that their finances can withstand potential downside risks to the economy.”

Reflecting that uncertainty, existing home sales took a nose dive in November, falling 6.1 percent below the October pace, which was also revised downward. New home sales also declined in November for the second consecutive month, falling to their lowest level since July of last year. Those declines came even though mortgage interest rates were hovering around their lowest levels for the year.

One bright spot in the housing data: The National Association of Realtors (NAR) reported that the number of first time buyers increased slightly, to 31 percent of the market, suggesting that a major contributor to the home purchase logjam may be easing. Pending sales, a marker for future home buying activity, also increased slightly (to 104.5 on the NAR index from October’s 104), but not enough to alter the concerns expressed by some analysts that the housing recovery may be losing momentum. “Home sales activity will likely continue to be uninspiring in the months ahead,” Laura Rosner, an economist at BNP Paribus, told clients in a recent report.

Home price appreciation rates, as measured by the S&P/Case-Shiller indices, continue to slow —a positive sign for those who think housing affordability is impeding sales, a negative for those convinced that the housing recovery is in trouble.

The Economic Outlook

What should you expect for the coming year? We’ve compiled a sample of forecasts for you to consider, bearing in mind that: a) Economic forecasts are notoriously unreliable; and b) It is only because they assume no one will remember their forecasts that economists are willing to make them.


  • Home appreciation rates will slow, but affordability pressures will increase, because wage gains will remain anemic.
  • The rental market will remain strong. A stronger economy will boost household formation rates, but most of those new households will be rentals.
  • Single-family sales and new home starts “could disappoint
  • “If these predictions for 2015 sound similar to our predictions for 2014,” Trulia economists say, “you’re right. As the rebound effect fades and fundamentals take over, the recovery gets slower and the market starts to look more similar from one year to the next. But there’s good news here. Even though the recovery remains unfinished, the housing market is becoming more stable and more certain for buyers, sellers and renters.”


  • Home prices will rise more slowly and affordability will worsen, but “the buying frenzy” will fade as investors exit the market.
  • Mortgage interest rates will rise.
  • Millenials will replace GenX as the primary drivers of housing market trends.
  • Rents will rise faster than home values.
  • Builders will focus more on less expensive homes.
  • The housing market will be driven more by “underlying economic fundamentals” and less by interest rates and appreciation rates.

Freddie Mac

  • Home sales will reach their highest level since 2007.
  • Home price gains will slow.
  • Mortgage rates will average 4.4 percent for the year.
  • “Economic growth has picked up over the final nine months of 2014 and lower energy costs are expected to support growth of about 3 percent,” Frank Nothaft, Freddie’s chief economist, predicts. “We expect the housing market to continue to strengthen, with home sales rising to their best sales pace in eight years, national house price indexes up, and rental markets continuing to display low vacancy rates and the highest level of new apartment completions in 25 years.”

Fannie Mae

Fannie is predicting “a broad-based but measured housing recovery amid improving consumer sentiment an income growth, slowly easing lending standards, and continued historically low mortgage rates. The housing market is likely to continue its gradual climb upward next year after a sub-par 2014,” according to Chief Economist Doug Duncan, but he warns that the “underwhelming” growth in earnings will send “a disappointing signal” to the housing market. As a result, “we fear that housing may, again, lag the progress of the overall economy.”


  • Millenials will drive household formation rates and spur home sales over the next five years.
  • Existing home sales will increase by 8 percent this year, home prices will rise by between 4 and 5 percent, and mortgage rates will end the year close to 5 percent.
  • Although affordability will decline by between 5 and 10 percent, increasing incomes will offset those pressures “somewhat.”
  • Distressed sales will decline and investors will become less of a factor in the market.
  • Credit standards will remain tight.
  • Inventory levels will remain low.
  • New home construction will remain sluggish.

National Association of Home Builders

Housing starts will increase only slightly next year to 1.2 million units compared with this year’s total of just shy of 1 million. “Housing isn’t staging a more vigorous recovery,” NAHB analysts say, “because for every plus, there’s a minus. Mortgage rates are low, but lending standards remain extremely tough. Rising home prices are gladdening the hearts of homeowners, but they’re making it hard for first-time buyers to break into the market. The economy is getting stronger, which helps buyers, but it also raises the cost of labor and materials. And if the economy gets much stronger, market forces and Federal Reserve actions could start to drive up mortgage rates.”

CORE Logic

Home sales will increase by 9 percent and housing starts will jump by 14 percent, spurred in large part by declining energy costs, “which could play a key role in the recovery of the housing market and the economy overall,” Deputy Chief Economist Sam Khater predicts. “Lower oil prices have led to lower transportation and home energy costs, which not only save consumers money but increase consumer confidence, increasing the likelihood that they will spend money on big ticket items [such as housing],” he says.