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Forecast: Housing Stage Set for Millennials

crystal-ball2015 is gearing up to be a stronger, more expensive housing market powered, for the first time, by new millennial buyers, according to the Realtor.com [1] 2015 Housing Forecast.

Among its five largest predictions for next year, Realtor.com expects first-time buyers will return to the market in full force after years of retrenchment that has dampened the recovery of the housing market. This push will be led by millennials, now settling into their families, careers, and 30s, who are eager to buy into the American dream.

This prediction mirrors that of Zillow [2], which earlier this month forecast [3] that millennial buyers will become the driving force behind the American housing market in 2015.

According to that report [4], 42 percent of millennials say they want to buy a home within the next five years. Millennials have, according to most accounts, stayed away from buying because they have eschewed settling into marriages and families until later in their lives.

With millennial family growth on the rise and economic conditions improving for younger Americans and the nation in general, Realtor.com foresees more buying among the under-35 set.

"In 2015, increases in employment opportunities will empower younger buyers to return to the market and fuel the continued housing recovery," said Jonathan Smoke, chief economist for Realtor.com. "If access to credit improves, we could see substantially larger numbers of young buyers in the market."

Smoke predicts that millennials will drive two-thirds of household formations over the next five years. Next year's addition of 2.75 million jobs and increased household formation will be the two key factors driving first-time buyer sales, he said. "However, given a high dependency on financial qualifications, this activity will be skewed to geographic areas with higher affordability, such as the Midwest and South."

The report sees Dallas, Atlanta, Denver, Des Moines, and Houston as the most promising growth areas in 2015, and expects between 5 and 14 percent growth in home sales in these areas.

And though the site expects homeownership overall to decrease, despite a growth in ownership for those under 35, Realtor.com predicts that existing-home sales will increase 8 percent as buyers become more motivated by the belief that rates and prices will continue to rise. The increase in home sales year-over-year will be similar to 2012, but this time the composition of properties sold will be more normal with minimal levels of distressed properties, the report noted.

Overall, Realtor.com expects home prices to increase 4–5 percent nationally, which in turn will help make homes 5 to 10 percent less affordable in 2015. On the mortgage front, Smoke expects fixed rates to top out at 5 percent by year's end, as rates on adjustable-rate mortgages will increase little.