Last updated: January 2, 2015 By David Payne Look for a stronger housing market in 2015. With income and employment rising, demand for housing will increase. It’s the gradual easing of credit conditions that will break the leftover 2014 sales logjam. This easing will come from changes made by Fannie Mae and Freddie Mac. First, down payments for Fannie and Freddie qualifying mortgages have been reduced from 5% to 3% for creditworthy first-time home buyers. This by itself will not open the floodgates, as most buyers in this category could have got a loan through the Federal Housing Administration (FHA). What is important is that the change signals mortgage lenders that Fannie and Freddie rules are beginning to relax, so lenders can consider making loans to folks that previously would have been ruled out automatically. Moreover, lenders can lower interest rates, since they have less risk on loans sold to Fannie and Freddie. A second change is further clarification of the circumstances in which Fannie and Freddie can refuse to purchase a loan, pushing it back on the lender. Confusion about this practice has had a surprisingly large effect, slowing lending, particularly for small lenders. They have been the most active in the market in the past few years, and having even one mortgage pushed back on them would tie up a large percentage of their available capital. Meanwhile, for large lenders, billion-dollar penalties levied on some for lax lending have spooked them and they have focused on growing other types of lending, such as business and consumer loans. Federal Housing Finance Agency Director Mel Watt’s comments that lenders shouldn’t be overly concerned about so-called putbacks, and further actions by the FHFA to reduce the uncertainty about the rules should go a long way to improve credit conditions in general. The impact of these changes will be significant. Lending would go up by an estimated 10% if lenders considered borrowers with FICO scores below 640. For example, the lower FICO scores of immigrants who are accustomed to using cash instead of credit may not accurately reflect their ability to repay a mortgage. Part of the market is already nearing normal conditions. Sales of existing homes are expected to grow 8% in 2015, and are likely to match or exceed what would have been considered average between 1999 and 2002, just prior to the housing boom and subsequent bust of the last decade. The strong rental market has pushed multifamily construction back to normal levels and now multifamily starts are likely to grow less vigorously—perhaps 5% this year. New single-family home construction and sales, however, are likely to surge by 25% or so in 2015. That will still put them at only about 70% and 60%, respectively, of prebubble levels, and they will not recover fully until at least 2017. Expect starts to hit 800,000 in 2015 and new-home sales, 545,000. New-home supply shortages will continue to ease gradually. A number of large builders are beginning to shift their focus from high-end to lower-priced houses. The shortage of skilled tradesmen such as carpenters and framers, which has hampered construction in recent years, will abate as wages rise and consistent work attracts more workers back to construction. Many found jobs outside the housing sector when the housing market crashed and construction dried up. In addition, land which developers began to develop a year or more ago will finally become available to build in the coming year, after clearing various regulatory hurdles. Expect continued moderate home price increases in the neighborhood of 3.5% in 2015 for the nationwide average. That’s a bit less than the 4% gain in 2014. The sharp rebounds of 2012 and 2013 are over and investors are again finding better returns in financial markets. Dept. of Commerce: New-Home Sales National Assn. of Realtors: Existing-Home Sales Dept. of Commerce: Housing Starts 9
Posted on: Wed, 07 Jan 2015 03:37:28 +0000
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