Housing market to make slight gains in 2015

Home sales and prices should rise modestly this year as the economy improves and more first-time buyers come into the market.

Q. We want to buy a home, but prices in our area just keep going up. Do you think we should buy now, or do you think we should wait and hope that prices will drop?

A. It's probably best that you buy now. If values and sales in your area are climbing, it's a good sign that they'll keep growing.

Nationwide home sales are expected to climb another 4 percent or 5 percent in 2015, most experts say, as the economy continues to slowly improve, mortgage rates hover near their historic lows and first-time buyers come back into the market.

Many readers have been asking about what's ahead for America's housing market over the next 12 months, so I'm devoting this entire column to answering some of the most common queries.

Q. How can experts be so bullish about the 2015 real estate market, considering that unemployment is still high?

A. Employment growth is the engine that drives the housing market. It's true that the nationwide jobless rate is currently about 6 percent, but that's a lot better than the 10 percent rate five years ago, which explains why home sales and values started to climb out of the dumps around 2011.

Economists expect another 2.5 million or even as many 3 million jobs to be created in the next 12 months, providing more people with the cash they need to get a mortgage loan and, equally important, the confidence that's required to take on a long-term loan commitment.

There's another key factor that will play an important role in the real estate market in 2015 and beyond: the "millennial" generation, those who were born in the 1980s or 1990s. Many are using their recently earned college degrees to get good-paying jobs, and the sharp rise in rental prices has, in many cases, already made it cheaper for them to buy a home instead of renting a comparable apartment.

Most of these millennial buyers will continue to seek relatively inexpensive homes, which allows current sellers the money they need to then purchase more-expensive houses. It's a trend that economists often call the "trickle up" theory, which tends to push prices higher in every sector of the nation's market.

Q. Will mortgage rates rise?

A. Probably, but not too soon, and not too much. Rates on 30-year mortgages hit a 27-year low of about 4 percent in the summer and have barely moved since. There are no foreseeable factors that could reignite inflation and spark a sharp rise in rates quickly, especially as plunging fuel prices help to offset climbing prices for most types of food.

This idyllic situation, though, won't last forever. Mortgage rates are expected to begin slowly creeping up by late spring, as the growing economy boosts demand for new home and business loans and if banking regulators at the Federal Reserve follow through with their previously announced plan to stop their complicated rate-cutting program.

Expect rates on 30-year fixed-payment loans to end 2015 at about 5 percent, roughly one full percentage point from today. At 4 percent, your monthly payment for a typical 30-year $150,000 loan would be $716. At 5 percent, your monthly payment would be $805. That's an $89-per-month difference.

Q. What parts of the country are expected to do best?

A. Probably the Midwest and South, where home prices generally are much lower than those on either coast, and thus will benefit the most from the jump in first-time buyers.

A comprehensive study published by Realtor.com, which included data ranging from household growth to local income and home prices, says that Atlanta will see an 11 percent increase in home sales, one of the best gains in the nation. Other top performers should include Des Moines, Iowa (9 percent), Dallas (7 percent) and Houston (5 percent). Sizable gains also are seen for most parts of Louisiana and Arkansas, and the Twin Cities of Minneapolis and St. Paul.

The Denver area also is expected to remain strong, with an expected 14 percent increase in sales. The gorgeous "Mile High City" is one of the few parts of the nation that has already recovered all of the local jobs that were lost in the recession.

Q. There has been a lot of talk that President Barack Obama and Congress are thinking about reducing or even eliminating the tax deductions that homeowners can take. Will they?

A. Absolutely not. I have five decades' experience covering the nation's housing market, and so can assure you that neither Congress nor President Obama will mess with your tax write-offs for your mortgage interest charges, property taxes and the like.

Anyone who wants to become president in 2016, or who wants to be in Congress after the votes are tallied, is smart enough to know that reducing the tax breaks that owners can currently take would be the end of his or her campaign.

• For the booklet "Straight Talk About Living Trusts," send $4 and a self-addressed, stamped envelope to David Myers/Trust, P.O. Box 4405, Culver City, CA 90231-4405.

© 2015, Cowles Syndicate Inc.