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Freddie Mac Deputy Chief Economist Len Kiefer, who will be a keynote speaker at the upcoming Five Star Government Forum in Washington, D.C., on March 18, predicted in Freddie Mac's March 2015 Economic and Housing Market Outlook that the coming year would be the best for housing since 2007, immediately prior to the crash.
A big reason for the bright outlook for the housing market is improved job prospects for those ages 25 to 34, commonly known as millennials. Analysts agree that housing recovery largely depends on this group finding sufficient enough employment to leave the nest and form new households. Last year at this time, 75.9 percent of millennials were employed; that number has increased by almost a full percentage point in a year, up to 76.8 percent, its highest level since 2008.
"This month kicks off the spring homebuying season," Kiefer said. "Between now and the end of June, we'll see about 40 percent of all home sales for the year. So these next few months will essentially tell us whether or not 2015 will be a good or bad year for housing markets. Overall, we're feeling good about housing and we expect this year to be the best year for home sales and new home construction since 2007 when we saw total home sales about 5.8 million for the year."
Steadily rising rents are also expected to drive more buyers to the home market in 2015. Rents have risen by almost 11 percent over the last three years and jumped by an average of about 3.6 percent in 2014 alone. Also, the 30-year-fixed mortgage rate prediction was revised slightly higher to 4.0 percent for 2015 due to recent upward pressure on Treasury bond yields; the rate is predicted to be 4.9 percent in 2016. Home price appreciation is also expected to slow in 2016 (3.9 percent) compared to 2015 (3.4 percent).
"With demand rising rapidly given the improved job prospects for younger households and vacancy rates at low levels, we expect to see rents rise at or above the rate of inflation this year as well," Kiefer wrote in the report. "This may be the tipping point. Many current renters may decide to strike while the iron is hot (mortgage rates are low and home prices not too high) and purchase a home this year."
The good news of Freddie Mac's report fell right in line with Fannie Mae's February 2015 Housing Survey, released Monday, March 9. That report found consumer sentiment to be at an all-time high since the survey's inception almost five years ago, with 47 percent of respondents saying they believe the economy is on the right track. The percentage of survey respondents who said they believe it is easier to get a mortgage today (54 percent) was also at an all-time survey high, according to Fannie Mae.
(Editors' note: The Five Star Institute is the parent company of DS News and DSNews.com)
