It’s Official: 2015 Was a Banner Year in Housing, but What’s Next
With the latest numbers on existing- and new-home sales from the National Association of Realtors®, we can now close the books on 2015. And quite a year it’s been! As we’d expected, 2015 produced major growth and some big-time milestones in housing’s recovery.
How good was it? Total home sales grew 7% over 2014 for the best year since 2007, based on 6% growth in existing-home sales and 15% growth in new-home sales. The increase in 2015 was a stark contrast to the decline in total sales in 2014.
And en route to housing’s definitive recovery in 2015, we hit plenty of landmarks—including a new nominal record for the median price of existing homes in June, a substantial decline in distressed sales, an uptick in the share of first-time buyers, and an increase in the share of new homes among total sales.
What drove the market last year
We estimate from monthly sales and survey data from NAR that sales to first-time buyers were up 12%. An improving economy, pent-up demand, and strong affordability brought more millennials and other first-time buyers into the market.
Sales to buyers relocating or resulting from a job change were up 8% as the country saw close to 2.8 million jobs created and the unemployment rate fell to 5%.
Demographics were a driving force behind strong demand for housing in 2015 as we returned to a more normal pace of household formation related to the healthy job market.
The new-home market grew in part because of builders responding to stronger and more consistent demand from entry-level buyers. As a result of product starting to shift, the median price of a new home ended the year at $288,900, down 4.5% from last year.
Not everything was about rainbows and green pastures, however. Distressed sales were down 19% as a result of fewer foreclosures and short sales. Sales to investors were down 10% as fewer distressed sales provided fewer bargains. Even sales to international buyers were down 12% due to weak economic conditions abroad, combined with a much stronger dollar.
What lies ahead
We are expecting growth again in 2016, but it will be more moderate for existing-home sales—and just a bit stronger for new-home sales. The demographics that fueled all that growth in 2015 should be just as strong in 2016. More employment growth should lead to similar household formation, and affordability will still favor buying over renting for those who are qualified and ready to settle down.
The year ahead should also see further gains in first-time buyers and more sales and purchases by retirees who are seeing their opportunity to capture the price appreciation they have enjoyed since 2011 and move to a home better suited for their retirement.
January is off to a good start for our growth forecast materializing in 2016. Despite the nauseating declines and turbulence in the financial markets, consumer confidence stayed firm and even increased in January. Likewise, we have seen a surge in visitors, searches, and listing views on realtor.com®, just as you would expect after the doldrums of the holidays.
It appears that consumers looking to buy in 2016 are heeding our advice and getting started in their home search. And ironically, those weak financial markets just gave them an early housewarming gift: Mortgage rates are lower now than when the year began.
The two biggest factors that held the market back in 2015 are also the primary problems now: tight supply and tight credit. Supply should improve somewhat in 2016 as new construction grows and as more existing homeowners such as retirees decide that it is the perfect year to sell and buy.
The tight credit situation is not likely to improve dramatically in 2016, so one of the best moves potential buyers can make is to work on increasing their credit score. Start now.
Jonathan Smoke is the chief economist of realtor.com, where he analyzes real estate data and trends to develop market insights for the consumer.