Zillow: First-Time Home Buyers Will Lead Recovery In 2015

Zillow: First-Time Home Buyers Will Lead Recovery In 2015 Zillow is forecasting that home sales will rise in 2015 compared to this year, due mainly to pent-up demand from first-time home buyers.

Factors that will result in more first-time buyers coming into the market include a predicted steep increase in rents; increased inventory of new, less-expensive homes; slower price appreciation; and better wages.

Zillow says these and other factors are converging to create more favorable conditions for first-time buyers.

‘Home value appreciation will continue to cool down, from roughly 6 percent now to around 2.5 percent by the end of 2015,’ says Stan Humphries, chief economist for Zillow, in a statement. ‘But rents will see no such slowdown, and will continue to grow around 3.5 percent annually throughout 2015. As renters' costs keep going up, I expect the allure of fixed mortgage payments and a more stable housing market will entice many more otherwise content renters into the housing market.’

In addition, Zillow forecasts that builders will begin constructing more, less expensive homes.

‘In recent years, home builders seem to have made a conscious decision to sell fewer, more expensive homes instead of more, cheaper homes,’ Humphries says. ‘In 2015, that will change, especially as demand moves toward the lower end of the market as millennials begin buying en masse. New home sales volume has been stuck around the 450,000 per year mark. In order to break out and get that number above 500,000, builders are going to have to start to build cheaper homes, which will help to narrow the price gap between new and existing homes and contribute to more rapid inventory gains.’

Zillow further predicts that by the end of 2015, millennial buyers (under the age of 35) will become the largest group of buyers, overtaking Generation X (35 to 50 years old).

‘Roughly 42 percent of millennials say they want to buy a home in the next one to five years, compared to just 31 percent of Generation X, and by the end of 2015, millennials will become the largest home-buying age group,’ Humphries says. ‘The lack of home-buying activity from millennials thus far is decidedly not because this generation isn't interested in homeownership, but instead because younger Americans have been delaying getting married and having children, two key drivers in the decision to buy that first home. As this generation matures, they will become a home-buying force to be reckoned with.’

In general, Zillow is predicting that 2015 will be a ‘turnaround’ year for the housing industry.

‘Since the recovery began in earnest in late 2012, buyers have really taken it on the chin, forced to contend with low inventory, tight credit, bidding wars and intense competition from investors and all-cash buyers,’ Humphries says. ‘But next year, we'll start to see things really turn around. More inventory will come on line, putting the competitive pressure on sellers for a change. This more balanced market will be smoother sailing for everyone, both for buyers in search of a competitive advantage, and for sellers who turn around and become buyers themselves.’

Zillow predicts the best markets for first-time buyers in 2015 will include the following cities:

1. Pittsburgh
2. Hartford
3. Chicago
4. Las Vegas
5. Atlanta

Zillow is forecasting that home values will increase by 2.5% in 2015, while rents will grow around 3.5%.


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