Lawrence Yun, chief economist, senior vice president of research, National …

Lawrence Yun, chief economist, senior vice president of research, National Association of Realtors

It has been an interesting year in the housing market. Interest rates remained relatively low and even fell below 4 percent this past October, while housing prices leveled off in much of the country after reaching double-digit percentage increases in 2013. Qualified mortgage (QM) and
qualified residential mortgage (QRM) rules from the Consumer Financial Protection Bureau also have defined how business is being done in the mortgage market.

With 2015 around the corner, we spoke with Lawrence Yun, the chief economist for the National Association of Realtors (NAR), about the trends that are expected to shape the housing market, as well as his economic forecast for the new year.

Where do you see the mortgage rate going in 2015?

It will be higher. I’m quite surprised it remained this low throughout 2014. I actually felt it would be somewhat higher by this time, but the slowness in global economic expansion is leading to investors seeking safe assets, including the U.S. Treasury, [which] helped keep mortgage rates at this
unimaginable low point. The pressure of quantitative easing will no longer be present in 2015 and the Fed funds rate is likely to be raised, [so the] expectation of those factors will push up the mortgage rate [to] something approaching 5 percent by the middle of 2015.

Will non-QM loan options open up in 2015?

There will be some modest opening up, just from the factor that mortgages are performing super well right now. Whatever lenders are originating is performing, so there is a market incentive for the lenders to make more loans. Lenders are at the same time wary of any potential lawsuits
that may come their way, [but] I’m sure the degree of lawsuits will be tapering off in 2015, which means that lenders will feel more comfortable in recycling some of their profits back into lending.

Will home sale prices increase in 2015?

I believe the price increases will not be comparable to what we’ve seen in the past couple of years where it was reaching double-digits or near double-digits. They will be something right in the mid-single-digits — 4 [percent] or 5 percent price growth. That price-growth projection is dependent upon whether or not inventory — particularly new-home construction — can come online. Next year I am projecting there will be about 1.3 million housing starts. If for whatever reason housing starts do not increase to 1.3 million [that] will make a more robust price appreciation of 7 [percent] to 9 percent next year.

Are there any hot topics that the NAR is working on with Congress?

We want to ensure that mortgages are available with the safety and soundness of government backing, so we [believe] Fannie [Mae] and Freddie [Mac] should not be returned to their old form. There needs to be some reform but government backing is important to ensure credit flow and hold down
mortgage rates. I also think there will be some talk about tax reform after the election. We will be sharing information and lobbying to ensure that important tax benefits that facilitate real estate and the economy are still in place.

How do you think the industry is faring now?

The fact that Ben Bernanke cannot get refinancing because he has switched jobs or has nonsteady income is a testament to the degree of how much of an overreaction there was in Washington. Hopefully, in 2015, things will begin to smooth out. I believe there is still sizable pent-up demand. We
have seen homeownership rates decline, but with some opening up in the credit box, more renters will convert into ownership. So that pent-up demand may start to come around next year and certainly over the next several years. From an industry point of view, things appear to be aligning much better going into

Lawrence Yun is chief economist and senior vice president of research for the National Association of Realtors (NAR). He is responsible for a wide range of research activities, including NAR’s Existing Home Sales statistics, Affordability Index, and Home Buyers and Sellers Profile Report.
Yun participates in economic forecasting panels, including the Blue Chip Council and the Harvard University Industrial Economist Council. He also appears regularly on financial news outlets and has testified before Congress.

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