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As home sales cool this fall, what will happen to home prices and interest rates?

What can we expect from the housing market this fall?

Autumn is typically known as the time of year when housing activity starts to slow down.

“Generally, home sales tend to be very robust in spring and summer, then begin to soften somewhat during the autumn and winter months,” says Lawrence Yun, chief economist and senior vice president of research for the National Association of Realtors, or NAR.

The slowdown begins in the fall because school is starting, and families with kids would rather not move during this time, he adds.

Mortgage rates likely won’t change pace, however. They’ve been volatile in recent months, but the trend for mortgage rates is still upward, says Logan Mohtashami, senior loan officer for AMC Lending Group in Irvine, Calif.

“Unless we get more (weak) data from Europe and China, the 10-year (Treasury) note and mortgage rates have room to climb up higher than these levels,” he says.

Nela Richardson, chief economist at real estate brokerage firm Redfin, agrees. She says the 30-year fixed rate has been under 4 percent on average for the past several weeks but may end up under 4.5 percent by year’s end.

“I think that as the economy improves, rates will increase a bit and also whatever the (Federal Reserve) does this year in terms of raising short-term rates might have an effect on mortgage rates, as well,” she says.

Here are five other trends in housing to look for over the next few months.

1. Inventory shortage will continue

A relatively small number of homes were for sale this summer, and that trend is likely to persist in the coming months.

“Housing starts are not really picking up at all other than apartments, and, therefore, I think we will continue to have, generally speaking, tighter inventory than normal,” Yun says.

There were 2.29 million, or 5.2 months’ worth, of existing homes for sale at the end of August, according to the most recent data available from the NAR. That’s 1.7 percent below the August 2014 inventory of homes for sale.

Then there is the separate category of newly built homes that have never been occupied. The seasonally adjusted estimate of new homes for sale at the end of August was 216,000, according to a release from the U.S. Census Bureau and the Department of Housing and Urban Development. That was about 4.7 months’ worth of new homes for sale — roughly three weeks shorter than the new-home supply a year earlier.

“Because there’s not a lot on the market, it causes all kinds of other things like higher prices, bidding wars (and) price escalation,” which leads to buyer fatigue, Richardson says.

2. Rental demand will keep growing

Mohtashami expects that the rental demand curve will continue to be strong.

Homeownership is near a 50-year low, and consumers who either can’t buy a home or aren’t quite ready to buy have been flooding the rental market, which has boosted demand — and rent prices.

The number of renters who spend more than half of their income on rent is projected to increase by at least 11 percent in 10 years, to 13.1 million people, according to research from Harvard University’s Joint Center for Housing Studies and Enterprise Community Partners.

3. Cash buyers will drop out

Real estate investors who snap up properties for the sake of generating rental income may start bowing out of the housing market this fall, Yun says. Why? Because of the disappearance of the foreclosed homes that investors usually are attracted to.

Yun says this change will “provide more opportunities for people who are buying homes for homeownership a better chance at obtaining the home with less competition.”

The share of homes purchased by individual investors ticked down from 13 percent in July to 12 percent in August, according to the NAR. Individual investors comprise many of the home sales that are paid for in cash, the NAR says.

“As the cash buyers fall, you need mortgage buyers to not only fill the slot but go higher,” Mohtashami says.

4. Credit standards may begin loosening

Lending standards will loosen but will do so at a “glacial pace,” Yun says.

“Those people who are getting approved (for) mortgages, their credit scores have been exceptionally high, but now (they) may begin to slide down,” he says.

Richardson agrees; she doesn’t expect credit standards to significantly loosen until 2016.

“Even (for) FHA loans, if you have something lower than a 680 credit score, you still don’t see a lot of mortgages being originated to the lower end of the credit spectrum.”

Mortgage credit availability has increased, meaning that lending standards have somewhat loosened for most of 2015, according to the Mortgage Bankers Association’s Mortgage Credit Availability Index.

5. Home prices will increase

As a symptom of the inventory shortage, home prices are predicted to continue moving higher.

“I hope the home price growth moderates because some of the price growth has been quite sharp — near double-digit rates of appreciation,” Yun says. He predicts annualized price growth of 3 percent to 5 percent toward the end of this year and into 2016.

Prices were up 4.7 percent year over year from July 2014 to July 2015, according to the latest Standard & Poor’s/Case-Shiller home-price index. Separate data from the Federal Housing Finance Agency show a 5.8 percent year-over-year increase for the same period.

“Mortgage rates may cut you a break, but prices don’t seem to be,” Richardson says.

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