Mortgage Market Forecast for 2015

Posted by Amrock
Since the housing market bust of 2007-2009, the recovery for
the mortgage market has been slow. Even with record low mortgage rates and low
housing prices, home purchases haven’t returned to their pre-2007 level. Recently,
an economic letter from the Federal Reserve Bank of San Francisco noted
that “The housing sector has been one of the weakest links in the economic
recovery, and the latest data trends continue to show only modest improvement.”
“Personally, I’m bullish on the mortgage market for next
year,” says Whitney
the Managing Director of Angel Oak Home Loans.
While he acknowledges that there are still challenges to be overcome, Fite is
nonetheless optimistic that the housing market’s recovery should pick up some
steam next year.

Economic recovery to
drive home purchases
“If you look at recent employment reports, there are strong
indicators that the economy is continuing to rebound,” says Fite. “Looking at
the consistency of job creation month over month, and the fact that we are
coming out of the most consecutive months of growth since the late 1990s, are
indications that job growth seems to be fairly sustainable.”

The unemployment rate has been consistently
falling over the last year, which Fite expects to continue. The Federal Reserve
feels that the economy is so sufficiently stable that it ended its asset
purchase buying
program. This
leads to expectations that the Fed Funds Rate will be hiked by the middle of
2015. While policymakers speak words of caution and patience, they too seem
relatively optimistic about the sustainability of the economic recovery.

Consumers who feel confident about the economy and their own
finances might be inclined to commit to a home purchase. “First-time homebuyers
are at a historic low right now, accounting for 28 percent of buyers, versus 40
percent before the crisis,” Fite says. “When you think about recovery and
improvement, you should expect the first-time buyer to come back in a robust

Fite also points out that it’s not just first-time
homebuyers that might feel more confident about buying as the economy improves.
“A great motivator in the market for the next year will be move-up buyers
looking to buy bigger, more expensive homes,” he says.

Will millennials be
ready to take the plunge?
So far, millennials have been reluctant to purchase homes.
He recognizes that many millennials, saddled with student loan debt and stuck
in an uncertain job market, have put off homeownership, deciding to rent
instead of purchase. Even those who can afford to make home purchases have become
reluctant. “They’ve been scared due to the recent carnage in the marketplace,”
Fite explains.

However, in spite of recent fears, Fite thinks that many
millennials, especially those who graduated college in the last five to seven
years, might be ready to take the plunge. Many millennials are older now, and
starting families. They might also be looking around, realizing that home
prices are still very reasonable, and that mortgage rates are near historic
lows. Next year offers them a big opportunity to get in the market while it’s
very affordable, Fite said. “If this age group becomes more comfortable, we
could see a decent surge,” he says. “Student loan debt might be a deterrent,
but there is still plenty of potential.”
Easier credit terms
should provide some support
Part of the problem with the sluggish mortgage market
recovery has been tighter lending standards. “The pendulum swung heavily to one
side after the financial crisis,” Fite says. “Now it’s starting to swing back to
the other, and there are more opportunities.”

Fannie Mae and Freddie Mac, two companies that provide
financing for a large number of mortgages originated in the United States,
recently announced that they are easing lending guidelines. Looser guidelines
mean that more people can qualify for mortgages, and that should help the
market. “The credit box is opening up more,” says Fite. “There are potential
buyers who couldn’t qualify for mortgages last year, or the year before, but
will be able to qualify in 2015.”

Fite thinks that raising rates would change things. “If and
when rates start going up, it could create urgency in consumers,” he points
out. “Consumers will look at affordability and see that rates are rising, and
may want to hurry to get a mortgage before rates go too much higher.”

He also points to programs that allow homebuyers to put down
less than 20 percent for a down payment, and other measures that are designed
to help buyers understand that mortgages are possible for them. With all of
these factors, Fite expects to see some positive growth in 2015. He thinks that
the growth in the mortgage market will remain relatively modest, but he sees the potential for a return to an
interest in home buying.