2015 Housing Market Predictions: 5 Real Estate Trends to Watch Next Year

It’s the first day of October. Before you know it, we’ll be into the holiday season, with the new year right behind it. So we thought it was time for a Home Buying Institute annual tradition — housing predictions and forecasts. Here are five real estate market predictions for 2015, and a few other trends we are monitoring.

5 Real Estate Predictions and Trends to Watch in 2015

  1. Home values will keep rising, but gradually
  2. Double-digit gains limited to California, Southwest
  3. Mortgage rates below 5% for most of next year
  4. Foreclosure inventory will decline sharply
  5. Mortgage loans will be easier to obtain

Let’s take a closer look at these, and other, housing projections for 2015:

1. Home values will continue rising, but more slowly than 2014.

Home price trends vary quite a bit at the local level. That’s why they are rising rapidly in some U.S. cities right now (like San Francisco), while still declining in cities. There is no such thing as “the” housing market, when it comes to pricing trends. It’s a local thing.

With that being said, national averages such as the S&P/Case-Shiller Home Price Index do serve as a general indicator of where things are headed. And they’ve been headed upward for some time now. According to the latest Case-Shiller report, published yesterday, prices nationwide rose 5.6% over the last year or so.

But that’s in the rear-view. What about going forward? Here’s a real estate predictions for 2015, regarding home prices:

Last month, financial data firm CoreLogic released their latest “HPI Forecast.” Their forecast includes predictions for monthly home-price gains, as well as annual pricing trends. According to the report, the economists and analysts at CoreLogic expect U.S. home prices to rise by 5.7% between July 2014 and July 2015. (Coincidentally, that’s about how much they rose from July ’13 to July ’14, according to the Case-Shiller index.)

CoreLogic’s forecast mirrors the more conservative outlook of many other economists, when compared to last year. The general consensus is that residential property values will continue rising in 2015, but at a slower pace than what we’ve seen over the last 12 months.

Related: U.S. home price forecast for 2015

2. Double-digit gains will be limited to California and the Southwest.

According to Zillow, the biggest price gains over the next year will occur in California and the Southwest. The real estate information company has an interactive forecasting tool that can be adjusted based on the projected increase (or decrease) in home values. According to their data, double-digit increases will be limited to a handful of cities in California and the Southwest.

zillow forecast map
Zillow: Real estate markets projected to see 10% – 15% gains through 2015

The map above shows 12 cities that could experience double-digit price gains over the next 12 months or so. They include ten cities in California, along with Reno and Las Vegas, Nevada. You can view the full list in the related story below. Zillow’s real estate predictions for 2015 are based on their own proprietary pricing models (ZestimateĀ®), actual sales prices, and other housing trends and data.

Related: Biggest price gains in California

3. Mortgage rates will hover below 5% for most of 2015.

Freddie Mac, the now-government-controlled corporation that buys and sells mortgage securities, conducts a weekly survey of mortgage rates being offered by lenders in the U.S. They also make various forecasts relating to the housing industry. Their long-term outlook calls for gradually rising rates over the next 12 months.

The chart below was created by narrowing their forecast to show the 12-month period from Q4 2014 to Q4 2015. As you can see, they expect the average rate assigned to a 30-year loan to rise gradually, perhaps reaching or exceeding 5.0% by the end of next year.

30-year rate projection

Granted, this is only a real estate prediction for 2015 — not an assurance. But it is based on some of the best data available, analyzed by economists who specialize in mortgage and housing trends. So it probably won’t be far off. Think of it as a well-educated guess.

Related: Rate forecasts from three expert sources

4. Foreclosures will continue to decline, as a percentage of total inventory.

Home foreclosure activity spiked when the housing market crashed, and it remained high in the years following. But starting a couple of years ago, foreclosure filings began to decline. This is another welcome sign of normalization within the real estate market, and for the broader economy as well.

Earlier this year, CoreLogic reported that foreclosure inventory had declined for 31 months in a row. Distressed properties are commonly priced below their true market values, which erodes home prices across the board (even for non-distressed properties). So a reduction of distressed inventory helps to lift and sustain real estate values.

RealtyTrac, a company that monitors foreclosed home statistics, also reports improvements on this front. According to Daren Blomquist, vice-president of RealtyTrac: “We’re in the homestretch of getting through the foreclosure crisis. But we won’t cross the finish line, with filings back to pre-crisis level, until early 2015.”

Many other analysts agree with this housing prediction for 2015. Fewer homes will be foreclosed on next year, which in turn should help the market continue its post-crisis healing process.

5. Mortgages Will Be Easier to Obtain

In July, the Federal Reserve released the results of its latest “Senior Loan Officer Survey on Bank Lending Practices.” According to that report, mortgage lenders are relaxing their standards in several key areas.

Or, as the Fed put it:

“The July survey results showed a continued easing of lending standards and terms for many types of loan categories amid a broad-based pickup in loan demand.”

Areas where “loosening” is most apparent: credit scores and debt ratios. In short, lenders are allowing lower credit scores and higher levels of debt, where mortgage borrowers are concerned. This trend is an industry-wide reaction to lower loan volume. Traditionally, when application volume goes down, lenders try to compensate by relaxing their standards and putting more loans into the pipeline. We saw evidence of this in 2014, and it will likely continue into 2015 to some degree.

Disclaimer: This story offers a handful of real estate market predictions for 2015, all of which are based on third-party data and information available at the time of publication. Due to the ever-changing nature of the housing industry and broader economy, some or all of these forecasts may prove inaccurate over time. No one can predict future real estate trends or conditions with complete accuracy. We make no claims, assertions or guarantees about such conditions. This article is the equivalent of an educated guess and should not be viewed as financial advice.