Housing Rebound Seen in 2nd Half

Home sales have been lackluster over the past year as interest rates rose, a harsh winter curbed housing demand and institutional investors retreated from the market.

Another factor in the anemic real estate market has been a dearth of first-time home buyers, with the segment accounting for just 29 percent of 2013 existing home sales versus 40 percent before the bubble burst.

But a turnaround is in the making, according to a report from Moody’s Investors Service.

The New York-based ratings agency predicts that home sales will climb from 5.5 million this year to 6.4 million in 2015.

Behind Moody’s increased optimism is an expected increase in job growth and pent-up demand for housing. Average jobs added during the past five months exceed 200,000, “a pace that is consistent with past healthy economic expansions.”

Young adults, who have been hit particularly hard by the Great Recession, are expected to fuel stronger-than-typical household formation over the next few years as they find jobs. This sector will quickly form households — boosting demand for both multifamily housing and home ownership.

Moody’s also sees mortgage lenders easing credit standards in the coming months as they seek to replace lost refinance activity and repurchase demands from Fannie Mae and Freddie Mac subside. In addition, credit access will improve as lenders become more comfortable with the Qualified Mortgage rule.

Increased demand will reduce supply and prompt home builders to lift activity. Housing starts are expected to climb from 1 million in 2014 to 1.68 million next year.

The strong housing market is expected to benefit the broader economy as home building drives job growth (each new single-family home built sustains 3.7 jobs over one year), home buying and increased equity drive consumer spending, and increased property tax revenues provide state and local governments with cash.