Here we go again. It’s that time of the year when I make 10 predictions for the mortgage industry and real estate market for the coming year.
If you wish, you can take a gander at my predictions for 2013 and 2014.
I fared pretty well last year, though I didn’t get the direction of mortgage rates right. Not sure if anyone did to be honest…
Now let’s look on to 2015, shall we.
1. Mortgage rates will fall
A year ago I argued that mortgage rates would inch higher. This was somewhat contrarian because many market pundits expected rates to rise significantly in 2014.
Instead, interest rates slipped about a half a percentage point on the 30-year fixed over the past year and now price at or below 4%.
I’m going to take a chance and say that mortgage rates will drop in 2015. With all the turmoil related to low energy prices and worries of slowing global growth, interest rates (and YOU) may be the beneficiary.
Rates might not hit new record lows, but the 30-year fixed could remain below 4% for much of 2015 if we continue on our current path.
2. Refinance activity will rise
Everyone wrote off refis in 2014 because mortgage rates were on the rise and everyone who could refinance already did in 2012 and 2013.
But the refi numbers came in higher than expected this year and the same could be true in 2015. With lower-than-anticipated interest rates, refinance activity should also beat expectations next year too.
Yes, a lot of people already refinanced, but many did not. Consider the fact that more borrowers have positive home equity and the pool of eligible applicants gets larger.
Sure, the numbers won’t be like those seen in 2012, but originators might still be able to record some decent numbers in 2015.
3. Cashing out will be more commonplace
Speaking of home equity, Americans gained roughly $3 trillion of it from the second quarter of 2012 through the second quarter of 2014, according to the Federal Reserve Board’s Flow of Funds.
This means homeowners will have a lot more equity to cash out in 2015. Banks and lenders will also be looking to target these borrowers seeing that rate and term refis won’t be as popular.
And with interest rates still favorable, homeowners shouldn’t be afraid to ditch their current mortgages for one that puts some money in their pocket.
So be on the lookout for lenders asking you to cash out! Just be sure it makes sense.
4. Real estate investors will begin to liquidate their holdings
While you might be cashing out, investors could be liquidating their hoard of single-family homes.
A recent report from RealtyTrac revealed that several large companies that bought scores of single-family homes have turned a healthy profit.
Instead of renting out these properties, they might just book some profits and unload. After all, why deal with tenants when you can sell to buyers at a premium?
These companies bought hundreds of thousands of properties that are now worth 25% more than what they paid for them. Next year could be a good time to ring the register.
5. Housing inventory will increase
Assuming that happens, the depleted housing stock should rise. It has remained very low post-crisis, but 2015 could be the year you can actually find a home to buy.
The bad news is that the true bargains may have already come and gone. So yes, you’ll have more homes to choose from, but you might not be happy with the price tag.
The good news is that your mortgage rate will still be low.
6. It’ll be easier to get a mortgage
Additionally, it should be easier to obtain a mortgage in 2015 thanks to recent changes at Fannie Mae and Freddie Mac.
The pair revised their guidelines recently to allow for loan-to-value ratios as high as 97%, instead of 95%.
That means those struggling to come up with a down payment will have an easier time bringing the required funds to the table.
Additionally, the pair clarified their buyback policies and that should lead to more mortgage approvals. At least when it comes to conventional lending…
7. The FHA will reduce their fees
With the recent re-introduction of high-LTV lending, the FHA is now under immense pressure to reduce fees.
The new mortgage insurance structure has already made FHA loans a lot less popular, but now that the agency’s books are back in the black, it might be time to ease up.
Senator Barbara Boxer and 17 other U.S. Senators have already penned a letter to HUD Secretary Julián Castro asking that he re-examine the FHA’s premiums.
It’s no secret they’ve gotten out of hand lately, and the political pressure alone should translate to lower FHA fees in 2015.
8. There will be more first-time home buyers
If the FHA does agree to lower fees, 2015 could be a great year for the first-time home buyer.
First-timers have largely been shut out of the housing market thanks to institutional investors, flippers, and other real estate pros. Oh, and those with lots of money who can buy homes with all-cash.
Now that home prices aren’t as attractive as they once were, expect first-time buyers to scoop up these same properties from sellers looking to turn a profit.
The availability of low-down payment mortgages will facilitate this phenomenon.
9. Boomerang buyers will start buying
A lot of so-called “boomerang buyers” should also re-enter the housing market in 2015.
In case you’re not familiar with the term, it refers to a former homeowner who lost their property to foreclosure or short sale being able to buy again.
The waiting periods to purchase a property after such an event generally range from 2-4 years for short sales and 3-7 years for foreclosures.
Plenty of borrowers lost their homes over the past seven years, so expect them to make their way back in finally.
This could boost home sales as well.
10. Non-QM lending will grow stronger
Lastly, I expect non-QM lending to become more of a household name in 2015. After all, the Qualified Mortgage rule was only put into effect a year ago.
But dozens of banks and lenders already offer non-QM loans, those that do not meet the strict definition of a Qualified Mortgage.
Now that lenders have had a chance to test the waters, look for more to introduce non-QM offerings, maybe even a large bank or two.
In summary, 2015 should be a surprisingly good year for the mortgage industry. And with a larger number of prospective home buyers in the mix, property values should continue to rise as well, though most gains are already baked in.
(photo: Maged Apps)
Informative blog! I think 2015 will be the very best year for making real estate investments.
Rarely do I agree so broadly with someone but I think you are spot on! I have 20 years experience as a broker and I feel that the key as you have stated before is the experience level of the originator you are working with! It really is everything and what most people don’t understand is although big banks are making tons of money, they pay very little to there originators. So, as a 20 year guy who earns mid six figures (mid 400k’s) I would have to work upstairs at a bank to see that kind of income! So, you as the homeowner or soon to hopefully be, get to work with the recent college grad with 9 months experience 3 resumes up online and very little product knowledge! So, unless your have perfect credit, assets and know exactly what you want it’s kinda like picking a brain surgeon and experience wins every time!
Your article is well written and informative. Thank you. I appreciate the way you back up your predictions.
The market factors you address point to a promising year. It’s an increase housing inventory that I am most cautiously optimistic about. So I hope you are right! In Seattle, Washington I have lots of frustrated buyers who can’t find the home they want due inventory levels lower than anytime since 2000.
There might be even more buyers now that HUD has lowered FHA premiums…