New-home sales disappointed in 2014 as closings fell to 352,830 after hitting 377,529 in 2013. If you include existing sales, it doesn't get much better. In 2013, 5,186,382 homes sold. In 2014, that number fell to 4,681,495.

The primary culprit? The much-maligned first-time home buyer. The proportion of first-time buyers of new and existing homes dropped to 33 percent of the market in 2014—the lowest share since 1987—according to a recent National Association of Realtors (NAR) survey. While, by default, that meant the other categories—move-up and luxury—took up larger portions of the market, no segment really thrived.

What does that mean for the 2015 selling season? Not a lot, other than the fact that it won't be too hard to improve over last year's lackadaisical numbers. "I believe this selling season will be stronger than last year's but not by a huge margin," says Brad Hunter, chief economist and director of consulting for Metrostudy, the research arm of BUILDER's parent company. "The primary key will be job growth and consumer confidence, which I expect to continue to pick up steam. The secondary key will be mortgage availability, which I think will improve slightly."

"Rents are rising at 4 percent, whick is twice the inflation rate. I think that will begin to get the attention of financially qualified renters to seriously consider home buying."

Others are more optimistic. "We do anticipate given the job creation and improving economy and consistent rise in prices, which is a big confidence booster for buyers, that home sales in 2015 will be rising about 7 percent," says Lawrence Yun, chief economist and senior vice president of research at the NAR.

The entry-level market—the source of angst in 2014—represents a reason for hope this spring. If that part of the business opens up and takes a bigger share of overall sales, all of the other segments should benefit.

"We're encouraged because the rates are still low and more people are moving into the lower-priced homes, which will release some folks into the move-up and luxury market as they are able to sell their homes with the new FHA rules and other things that are going on," says David Weekley, chairman of Houston-based David Weekley Homes.

Nelson Mitchell Jr., president and CEO of Dallas-based Historymaker Homes, claims he sees his business growing approximately 20 percent in 2015. Though some of it is due to timing on openings that were delayed, growth in the entry-level and move-up business plays a role, too. "We are anticipating a stronger market in both of those segments," he says.

Basically, the rising tide of entry level ultimately will lift everyone. "I think all three segments will go up in absolute terms," Hunter says. "It's just the share that will change a little bit."

Outside of pent-up demand pushing homeowners up the buying rung from entry-level to luxury, there are a lot of other economic, demographic, and psychological factors that will fuel the new-home market in 2015. As we enter the spring selling season, here's a look at Hunter's 2015 market-share projections for each segment of the new-home market, along with what will drive those segments in the year ahead.

Entry-Level Home Buyers

28% of the new-home sales market in 2015
After hitting historic lows in 2014, the entry-level section of the home market should improve in 2015. "The first-time buyers will slowly make a comeback," Yun says. "I think the low point was hit in 2014. We will begin some steady recovery in the first-time buyer percentage this year and more so next year."

Already some builders are seeing improvement. "Part of the whole question that builders are having on national basis is, ‘When will the first-time buyer market normalize?'" says Rick Carruthers, executive vice president and Atlanta division president at Century Communities and former CEO at Peachtree Communities, which built entry-level product in the Atlanta market. "We've already seen some improvement in that market."

Matthew Hollister

Entry-Level Home Buyer

Children Two children (63% percent have two children)
Age Broad age ranges for head of household from 25 to 54
Education High school graduates with few college grads
Income Most incomes under $75,000
Home Values Generally at or below median
Source: National Profiles of Metrostudy's Housing Consumer Groups

The question is how much will entry-level grow in 2015. Metrostudy says it will be 28 percent of new sales, but Yun predicts it will be higher in overall home sales. "The normal first-time buyer percentage is closer to 40 percent," Yun says. "Something closer to 35 percent, I would say this is a good definitive turnaround."

One factor fueling Yun's optimism is President Barack Obama's recent decision to reduce FHA's mortgage insurance premiums by 50 basis points. Financial advisory firm Raymond James says the move represents an "inflection point." In a January research report, the firm says, "Against that backdrop, we believe the industry is now poised for a strong reacceleration in sales activity, and a re-emergence of first-time buyers could prove to be a strong tailwind for all home builders this spring."

The savings entry-level buyers will receive from this announcement is real. "That will save roughly $1,000 a year for a typical person taking out an FHA mortgage, which will be a meaningful sum for middle class families," Yun says. "FHA is principally catered to moderate income first-time buyers so this is great news for people in that segment."

Mitchell is also optimistic that the FHA move will help lure first-time buyers into the market. "We believe that there a lot of people on the sidelines in the first-time home buyer market," he says. "There is another wave of people renting and waiting to step into homeownership and those [FHA] guidelines could allow them to do so."

But that's not the only policy move that could increase the entry-level share. In October, Federal Housing Finance Agency (FHFA) director Mel Watt introduced a 97 percent loan-to-value ratio for loans from Fannie Mae and Freddie Mac. Fannie's program launched in December, and Freddie's is expected to come online in March, which would be just in time for spring selling season.

"We've seen some encouraging signs from the FHFA, which controls Fannie and Freddie," Hunter says. "People no longer need to put 20 percent down to have a loan from Fannie and Freddie."

But there's more than just easing up on underwriting standards that could drive the lower priced home market. Builders also have begun to construct lower-priced products to meet the needs of these buyers. "I think the builders like D.R. Horton and LGI are starting to address that segment more, as well as a lot of local builders," Hunter says.

Rental rates also could play a role in the transition. After years of rising rental rates, tenants finally may have had enough. And with an improving economy and wages and less restrictive underwriting, they may finally enter the market in 2015.

"Rents are rising at 4 percent, which is twice the inflation rate," Yun says. "I think that will begin to get the attention of financially qualified renters to seriously consider home buying. The combination of job creation coming with underwriting standards loosening will up be the trigger, along with rents increasing."

Because, ultimately, Yun contends that many of these renters eventually want to be homeowners. "The surveys consistently show that millennials want to be owners," he says.

Move-Up Home Buyers

57% of the new-home sales market in 2015
If entry-level sales increase, it makes sense that move-up should follow. With CoreLogic projecting home prices to rise 5 percent from September 2014 to September 2015, owners of existing homes should feel more confident about selling and moving into something nicer or bigger—or both. "As people in entry-level now start to accumulate equity, they will be able to move and that will help the move-up market," Hunter says.

Another factor that could drive the move-up market this spring is buyer psyche. With a strong 2014 that produced 3 million new jobs, buyers are becoming more optimistic and more willing to take the risk of selling their existing home.

"I generally think that people have been reticent to move coming out of the recent downturn," Weekley says.

Matthew Hollister

Move-Up Home Buyer

Children Average two per household
Age Broad age ranges for head of household from 35 to 54
Education College-educated in professional fields
Income $75,000 to $100,000
Home Values $200,000 to $500,000
Source: National Profiles of Metrostudy's Housing Consumer Groups

Now that they have come out of their six or seven year hibernation caused by the Great Recession, many people see that their needs are different than they were before.

"It's folks realizing that their life situation has changed and they want a house that reflects where they are today," Weekley says. "We're seeing more and more people that put off buying decisions going through the downturn starting to come alive and see the different options out there."

The numbers back up Weekley's contention of pent-up demand. "They have been holding on to homes for a longer period than normal," Yun says. "So there's pent-up demand. Rather than holding a home for seven or eight years on average, they're holding on for closer to 10 years."

With low mortgage rates, these people may see an opportunity to buy a more expensive home now than they might a few years from now if rates move up. "We still have really attractive mortgage rates," says Mitchell, who thinks move-up is the strongest segment of the market in the Dallas area. "At least right now, affordability is still really strong. I think people do have more buying power today and that will keep the move-up market strong."

Outside of increased confidence and an improved economy, some builders are hoping that changes in Washington, D.C., could open up the move-up market. Chris Cates, co-owner of Fayetteville, N.C.–based Caviness & Cates Communities, says the sequester hurt his move-up business in 2014. "The sequester just cut the spigots off," Cates says. "That just killed the military market."

Cates hopes a real defense budget could give buyer certainty to buyers in military towns across the country. "In 2014, we didn't have stability in the military market," he says. "Most of those buyers have kids and want a bigger house. And I'm hoping that the military market, with a little bit of stability, will start to come back. I think we'll get more stabilization with a new Congress."

While it ultimately may sound like wishful thinking, it's yet another reason why move-up could be better in 2015.

Luxury Home Buyers

15% of the new-home sales market in 2015
Last year luxury outperformed the market in 2014. For instance, in the third quarter Redfin released a report saying luxury sales—homes priced at $1 million or more—rose 9 percent. While Hunter still expects overall volume in that segment to grow in 2015, there are some warning signs on the horizon.

One of the hubs of luxury sales over the past year and a half was Texas, which was driven by an influx of people from California, Florida, Oklahoma, Louisiana, and Illinois. The 2015 Texas Luxury Home Sales Report from the Texas Association of Realtors cited sales volume increases ranging from 9 percent to more than 25 percent for homes at $1 million or more in Houston, Dallas, San Antonio, and Austin.

But there's concern that falling oil prices could hurt the luxury market in Texas, and in Houston specifically. "If someone is in the oil business and is a luxury home buyer, they may be rethinking things as far as a purchase in Houston," Hunter says.

Matthew Hollister

Luxury Home Buyer

Children Average 1.5 children
Age Broad age ranges for head of household from 35 to 64
Education High number of post-graduate degrees
Income Well over $100,000
Home Values Over $500,000; owns 38% of homes valued over $1 million in the U.S.
Source: National Profiles of Metrostudy's Housing Consumer Groups

On the ground, the situation doesn't seem to be that dire—yet. Weekley, who builds homes in excess of $2 million or $3 million in the Houston market, hasn't felt the effects of declining oil prices so far. But he has met with oil executives and is monitoring the situation into 2015. "The real question is how long [oil] prices stay low," he says. "It's not an immediate issue because a lot of oil and gas projects take a long time to come on and they're very long-term projects. If they come back within a few months we'd feel little better. If they stay down for a couple of years, we'd feel a lot more impact."

Nationally, the luxury market looks susceptible to other factors. If the stock market stays in its early year funk, luxury sales could suffer. "Luxury will be driven by the stock market," Hunter says.

But if the Federal Reserve continues on the same path with its monetary policy, Hunter thinks things will stay about the same. "It will continue to be supported by the Feds supportive monetary policies. But if that changes and the psychology turns the other way that could hurt luxury housing."

The luxury market also could benefit from demographic drivers as well. If entry-level buyers come in and push existing homeowners into the move-up segment, that could push move-up owners into luxury. And, as millennials start to graduate from college and look for their own housing, Weekley thinks their parents will look to buy nicer homes, even if they aren't bigger. He says parents often will take excess funds once their kids are out of college to "buy the home they've always wanted. It's not always a move down. Oftentimes they want nicer homes on a golf course or on a lake and all kinds of different things than when they had kids and were bound to a school district."

And they also may prefer urban areas. Historymaker's Mitchell says his Rendition Luxury Homes line has done well with well-located, brownstone communities in high-end Dallas neighborhoods, and he expects this to continue into 2015. While buyers may be giving up square footage, they're moving into strong, high-barrier locations with high-end appliance, flooring, and fixtures. Customers are paying $330 to $350 per square foot for these homes, which is expensive in Dallas.

"I think it's a strong buyer market," Mitchell says. "It's an empty nester that's tired of all of the square footage. In a lot of cases, these people own two to three homes, so they want a nice lifestyle in an urban setting where they've got all of the amenities, restaurants, and grocery stores, and are walking distance to movies and those sorts of things. It's a highly location-driven deal."

Location is equally important in other markets. In the Carolinas, Cates sees coastal areas remaining strong into 2015. "The retiree market heated up on the coasts," he says. "Myrtle Beach is very good. We're going to be active in coastal areas."