Housing outlook

With the strengthening of U.S. employment, economists are feeling more confident about the housing market in the coming two years.

Economists anticipate existing-home sales to increase from 5.25 million units in the first quarter of 2015 from the current level of 5.09 million units. Economists also anticipate home resales to increase more in the second quarter of 2015 to 5.29 million.

Employers added more than 200,000 jobs for the last six straight months in July. This is what is causing economists to having a positive outlook for the housing market. Further, many economists believe that low mortgage rates and improving employment will promote a “gradual growth” in the housing sector.

Analysts of the housing market are forecasting that mortgage rates will increase more slowly than they first thought in May. However, they expect the Federal Reserve to gradually increase its benchmark rate sometime next year. The Fed has held its benchmark interest rate near zero for six years. Economists surveyed anticipate the 30-year fixed-rate mortgage to increase to 5.25% in 2016. This is a slight decrease from the 5.68% average they had expected in the prior survey in May.

According to the Mortgage Bankers Association, the median forecast for the 30-year mortgage rate is 5.25% for 2016, which decreased from 5.68% forecasted in the May survey. To provide more perspective, the 30-year interest rate averaged 4.28% last week. The largest concern of policymakers and economists is inflation. Inflation could spike and cause faster interest rate increases that may adversely impact the real estate market.

First-time buyers are finding it difficult to find entry-level homes in many markets despite available homes sale inventories reportedly being at almost a two-year high. According to Reuters, these buyers are being outbid and are finding affordable inventory scarce. This is being attributed to foreclosures decreasing and investors continuing to purchase with cash low-priced homes to rent.

Another challenge is some homeowners still are underwater on their mortgages (meaning they owe more than market value), preventing them from moving and placing their homes on the market.

The number of homes for sale priced below the country’s bottom third of the market dropped 17% in June compared to a year earlier, according to Redfin. This is compared to overall inventories increasing 3% in the middle of the market and 15% in the top price points.

Due to the high demand and limited choices, average list prices on the lower end of the market are increasing, on average, 15% in June as compared to where they were this time last year, according to Redfin. As a result, entry-level buyers are being forced to realign their expectations. First-time buyers accounted for 28% of all sales of existing-owned homes in June.

This is down from a historical average of about 40%, according to the National Association of Realtors. It will take some time (the National Association of Homebuilders anticipates two years) for home builders to meet the need for entry-level homes. First-time buyers are also still encountering financial hurdles when seeking a mortgage, making it difficult to purchase a home.


Mary Ann Clark is a Realtor with Coldwell Banker at 177 West Putnam Avenue in Greenwich. Questions or comments may be emailed to [email protected]

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