The sharp decline in new and existing home sales in November is not a sign that the housing recovery is coming off the rails, but it is troubling, according to a client note from Capital Economics.

“The drops came after a period of sustained gains, and the decline in existing home sales in particular looks extreme relative to the pending home sales measure. In any case, with employment growth strong, consumer confidence hitting multi-year highs and mortgage interest rates at 18-month lows, home sales will pick up again in 2015,” writes Paul Diggle, property economist with Capital Economics. “The government-mandated 50 basis point reduction in FHA annual mortgage insurance premiums should provide a further small fillip to housing market activity, but won’t be a game-changer.”

Diggle added that the net effect on the economy of falling oil prices, lower long-term interest rates and a stronger dollar should be positive.

He also said that positive signs are that mortgage interest rates fell to a 19-month low of 4% in December, and that affordability will be helped by lower FHA premiums.

The MBA’s measure of 30-year mortgage interest rates ended 2014 at 4.02%, which was the lowest level since May 2013.

Fannie Mae’s measure of 30-year rates ended the year on an even lower 3.83%. The 70 basis point fall in mortgage rates during 2014 was driven by safe haven demand for U.S. Treasuries and an easing in market rate expectations.

“With house prices rising, however, mortgage affordability has more-or-less marked time. The NAR’s affordability index, which measures the average household’s income as a share of the income required to qualify for a mortgage to buy the average home, ended the year on 164%,” Diggle says. “That left affordability unchanged over 2014 at a level that is favorable by historical standards."

He added that housing became less undervalued over the past year – but on the whole, the level of prices still looks conducive to rising housing market activity. The comparison between prices and disposable incomes per capita points to housing being around 9% undervalued.