Housing: risk tolerance and job growth are key to 2015.

• Author: McCoy, Douglas M.

Multifamily housing continues a very good run, but the single-family housing sector has continued to struggle. Job growth, consumer conhdence, and access to attractive credit terms are the primary drivers that bring potential homebuyers to the market. Considering these factors, most experts believe the housing market will move in a more positive direction in 2015.

For example, the National Association of Realtors projects that existing home sales will increase 7.7 percent from 2014 levels and new single-family home sales will rise 33.5 percent nationally (see Table 1). Median home prices are also expected to increase slightly.

However, the housing market's risk tolerance is low (as seen in the disappointing results of 2014), and uncertainties abound. These uncertainties include unemployment, wage growth, access to credit, investor activity and tumultuous world affairs.

* Hiring is gaining momentum, but unemployment remains high--especially when including people who have given up searching for work.

* Wage growth has been moderate-to-negative for many Americans.

* Access to attractive credit is questionable, as market participants struggle to find the proper underwriting balance and the Federal Reserve ends its bond-buying program.

* Single-family investor activity has slowed, and the threat of investors selling their inventories into the market remains.

* Middle East unrest, Ebola and Europe's economic climate could negatively impact consumer confidence.

So, while most industry sources support the notion of a more positive 2015, it could mirror the less-than-satisfactory 2014 should these uncertainties take a negative turn.

The probability for a better 2015 in the single-family housing market in our nation's cities and towns largely depends on job growth and how wages compare to that locale's median housing price.

One key factor in mortgage qualification is a household's monthly gross take-home pay relative to its payments for housing costs--the total of the mortgage payment, real estate taxes and home insurance. Holding all other things equal, communities with positive job growth and a favorable margin between wages and housing costs are more likely to experience a stronger single-family real estate market.

Likewise, the greater the margin between wages and housing costs, the higher the risk tolerance of potential buyers in that market. For example, if mortgage rates increase, communities with a wider margin (i.e., higher risk tolerance)...