Mortgage

Home-price growth will stabilize around 4% through 2015

Capital Economics: Lower LTV will offset any drags

House prices have regained fresh upward momentum in recent months, which looks set to be extended into the early part of 2015, but price gains will likely stabilize around 4%, according to a client note from Capital Economics.

The reason, analysts say, is because existing homeowners and homebuilders will respond to higher prices by increasing supply.

“The outlook for real economic growth was looking up even before the collapse in energy prices,” says Paul Diggle, property economist for Capital Economics. “The boost from easing credit constraints and the fading fiscal tightening is more than offsetting any drag from slower economic growth overseas. While inflation is not rising as quickly as we expected, employment growth has outpaced our earlier expectations.”

Besides increased employment, there is the issue of likely interest rate hikes in the first part of 2015.

“A March rate hike is not out of the question. Thereafter, we expect the Fed to continue raising rates more aggressively than the markets expect, with the Fed funds rate reaching 3% by the end of 2016,” he says. “In turn, that means that 30-year mortgage rates will increase from 4.1% now to 5.5% by the
end of 2015 and 5.8% by the end of 2016. Housing affordability will deteriorate, but even by end-2016 affordability will be more favorable than the historical norm.”

Capital Economics doesn't think that rising interest rates will affect home sales.

“With credit conditions loosening, negative equity falling and buyer confidence increasing, we expect total home sales to rise from 5.4m this year to 5.8m next year and 6.0m in 2016,” Diggle says. “New home sales will provide the bulk of the impetus for this gain.”

Most Popular Articles

HomeStreet Bank fined for kickbacks to real estate agents, homebuilders

The FDIC announced Wednesday that it reached a settlement with HomeStreet Bank after an investigation found that HomeStreet had paid kickbacks to real estate agents and homebuilders in exchange for their mortgage business.

Nov 06, 2019 By

Latest Articles

Offerpad will let buyers customize their homes before they move in

Arizona-based iBuyer Offerpad recently announced its latest feature, one that allows homebuyers to customize their homes before moving in. According to company, consumers, upon selecting an available listing through the company’s app or website, will be able to select and visualize customization options.

Nov 11, 2019 By