It is really starting to look like 2015 could be a good year for real estate and the economy…
Freddie Mac November 2014 Housing and Economic Outlook
Freddie Mac just released their big November 2014 Housing and Economic Outlook and they are expecting the real estate market and the economy to strengthen in 2015.
Frank Nothaft, Freddie Mac vice president and chief economist said:
The good news for 2015 is that the U.S. economy appears well poised to sustain about a 3 percent growth rate in 2015 — only the second year in the past decade with growth at that pace or better. There are several reasons for the better macroeconomic performance. Governmental fiscal drag has turned into fiscal stimulus, lower energy costs support consumer spending and business investment, further easing of credit conditions for business and real estate lending support commerce and development, and more upbeat consumer and business confidence, all of which portend faster economic growth in 2015. And with that, the economy will produce more and better-paying jobs, providing the financial wherewithal to support household formations and housing activity.
Sounds great doesn’t it?
Let’s look at some of the predictions that Freddie Mac economists have made for 2015:
Mortgage Rates Will Rise in 2015
Freddie Mac says by next year that the 30 year fixed rate mortgage will rise to 4.6% and keep rising up to 5% by the end of 2015. If this turns out to be true, buyers should NOT waste time as it will only decrease their buying power.
Check out the chart showing how Freddie is predicting mortgage rates will increase:
Home Prices Keep Rising
The good news is that the rate that home prices are increasing will slow down according to Freddie. We certainly do NOT want another housing bubble. Freddie says that US home prices will rise 4.5% in 2014 and rise by 3% in 2015.
Check out the chart showing how Freddie says that home prices will increase in the coming year:
Housing Starts Increase Dramatically
I sure hope that Freddie’s prediction that housing start increase 20% from 2014 is correct. This would be a BIG shot in the arm for our still weak economy and would also create much needed jobs. And it will help with the inventory problems in some areas / price ranges.
Check out the chart from Freddie showing their projections for housing starts in 2015:
Mortgages Originations in 2015
Freddie is predicting there will be fewer single-family originations because of a decrease in refinancing. Freddie is expecting that mortgage refinancing will only be 20-25% of all mortgage activity on 2015. The lack of refinancing activity could be a good thing for buyers as lenders will be more competitive.
Freddie is expecting multi-family mortgage originations to increase in 2015 due to high demand for rentals.
Economy Expected to Grow
Another one of Freddie predictions that I hope comes true is that the gross domestic product (GDP) in 2015 will grow by 3%. If this turns out to be true, it will be the 2nd time in the last decade with growth at 3% or higher.
More growth means more jobs. Hopefully 2015 will be good for the majority of Americans instead of just Wall Street and the rich…
Consumer Confidence Increases
As we see more stories such as the one above from Freddie Mac, we should continue to see consumer confidence increase. As a matter of fact, the latest US Economic Confidence Index from Gallup reached its highest level since June 2013. That record high back in June 2013 is the highest point since Gallup began tracking economic confidence in January 2008.
While this sounds great, it is when we dig a little deeper wee see that 50% said the economy was getting worse. Still, if the improvement continue it means that Gallup’s Economic Confidence Index could turn positive for the first time since the recession.
Somewhat related is a recent report from the Federal Reserve Board’s Division of Consumer and Community Affairs. Since first time home buyers are so important for the housing market, it is somewhat disturbing to see that 34% of young adults are unsure of their future employment outlook and 21% are pessimistic.
The silver lining in the Fed’s report is that 45% said they were optimistic. As the economy improves, we can expect these numbers to improve.
Home Builder Confidence Increases
It isn’t just consumers that are feeling more confident. The National NAHB/Wells Fargo Housing Market Index was just released and it increased to the 2nd highest level since 2005!
NAHB Chief Economist David Crowe said:
Low interest rates, affordable home prices and solid job creation are contributing to a steady housing recovery. After a slow start to the year, the HMI has remained above the 50-point benchmark for five consecutive months, and we expect the momentum to continue into 2015.
NAHB Chairman Kevin Kelly said:
Growing confidence among consumers is what’s fueling this optimism among builders.
Interesting how one growing confidence will start to snowball and spread. With so much negative stuff in the news, it makes me happy to share some positive news that should mean a healthier housing market in 2015.
Retail Sales Increase
With so much of the economy driven by retail sales, it a good sign that retails sales rose 0.3% in October according to the Census Bureau. The October 2014 retails sales numbers were also 4.1% higher than October 2013.
Check out the chart showing the change in retail sales from the previous month and previous year:
As we approach the Holiday season, we must keep an eye on consumer spending since it will have an effect on the economy. Also Wall Street and the banks will watch the strength of Holiday sales so it could affect mortgage rates in the coming year.
Deloitte Consumer Spending Index Dips
The Deloitte Consumer Spending Index dipped in October after two months of consecutive increases. The Index tracks consumer cash flow as an indicator of future consumer spending.
Daniel Bachman, Deloitte’s senior U.S. economist said:
The decrease in the real median new home price mainly contributed to the decrease in the Index this month. But the fundamentals behind consumer spending remain strong.
The Index, which comprises four components — tax burden, initial unemployment claims, real wages and real home prices — decreased to 4.1 this month from 4.4 last month.
Deloitte said that consumers appear to be poised for some strong spending this season with lower gas prices and employment gains strengthening their confidence. In their most recent consumer holiday survey, shoppers said they plan to spend 13% more than last year.
As I said, we must watch consumer spending this Holiday season.
Credit Default Rates Increase in October
Consumer credit default rates rose slightly in October from the previous month according to S&P/Experian. The national composite in October 2014 rose two basis points from September 2014. Which sounds bad but bank card and 2nd mortgage default rates are at historic lows.
First mortgage defaults increased for the third consecutive month. Through October, the default rate was 0.96%, three basis points higher than September but down 34 basis points year over year.
Meanwhile, the second mortgage default rate declined five basis points month over month, to 0.47%. A year earlier, the second mortgage default rate was 0.72%
Experian also reported that credit scores are increasing and that mortgage originations are down 39%.
The Take Away
Freddie is predicting rising home prices and mortgage rates in 2015. Both consumers and home builders are more confident. Looks like we might have a great Holiday season for retail sales. Mortgage default rates are down YoY.
Other than the number of originations being down and predicted by Freddie to decrease in 2015, it is REALLY starting to look like 2015 could be a good year for real estate and the economy.