2014 Real Estate Outlook and Predictions
2013 witnessed one of the most robust real estate recoveries in history. Home prices dramatically increased, fewer homeowners were underwater, and builder confidence was finally on the upswing. It appears as though 2014 could be another good year for housing. In general, we see interest rates rising, inventory growing, and a fewer number of homeowners struggling to make payments. Also, home prices could increase in the first half of 2014 as a result of pent up demand due to a lack of inventory at the end of 2013.
We have made some predictions for the real estate market for the coming year.
1. Mortgage rates may rise
Many predict rates will hit 5% by the end of 2014–significantly up from the previous 3% levels. However, this is still well within normal levels. New Fed Reserve chief Janet Yellen is expected to continue Ben Bernanke’s policy of keeping mortgage rates low by buying blocks of mortgage-backed securities, but the Fed’s bond-buying taper could push rates higher. “While this will make homes more expensive to finance – the monthly payment on a $200,000 loan will rise by roughly $160 – it’s important to remember that mortgage rates in the 5 percent range are still very low,” says Erin Lantz, Zillow’s director of mortgages. Really. “Prior to the Federal Reserve’s 2008 decision to buy $85 billion in debt per month, the 36-year average was 9.2%, and never below 5.8%,” notes Glen Kelman, CEO of Redfin.
2. Loans will become easier to obtain
Banks will continue loosening lending standards as we have seen in the last half of 2013. Lenders have been introducing past products such as stated income loans. “The silver lining to rising interest rates is that getting a loan will be easier,” says Lantz. “Rising rates means lenders’ refinance business will dwindle, forcing them to compete for buyers by potentially loosening their lending standards.”
3. Home supply should increase
A severe lack of inventory drove rapid price increases at the beginning of 2013, but look for that to change in 2014. We noticed that the homes available for purchase shortage began to soften in February. New construction and rising prices should bring more homes, both new and old, on to the market in 2014, helping inventory return to traditional levels.
4. Home prices could rise 2- 3%
Although some are predicting that home prices will rise between 3% and 5% in 2014, we believe that growth will be more tempered. The rise in inventory should keep home prices in check as there will be less frenzied demand and fewer multiple offer situations. For comparison’s sake, 2013 saw jumps of 5% nationally, with increases of more than 20% in some hot spots. According Zillow Chief Economist Dr. Stan Humphries, “these gains, while beneficial in many ways, were also unsustainable and well above historic norms for healthy, balanced markets,” . “This year, home value gains will slow down significantly because of higher mortgage rates, more expensive home prices, and more supply created by fewer underwater homeowners and more new construction.”
5. Fewer distressed homeowners
The significant rise in home values helped 2.5 million homeowners with underwater mortgages regain positive equity status during the second quarter of 2013, according to Realtor.org. By Q3, a CoreLogic report found that about 6.4 million homes were still in negative equity at the end of Q3. Watch for that number to shrink in 2014.
6. Home ownership rates will decline
In 2014, Zillow predicts, home ownership rates will fall below 65 percent for the first time since 1995. “The housing bubble was fueled by easy lending standards and irrational expectations of home value appreciation, but it put a historically high number of American households – seven out of ten – in a home, if only temporarily,” says Humphries. “That home ownership level proved unsustainable and during the housing recession and recovery the home ownership rate has floated back down to a more normal level, and we expect it to break 65% for the first time since the mid-1990s.” Watch also for adult children to move out of their parents’ homes, starting their own households and further decreasing the overall home ownership rate.
7. Americans will downsize
Rising prices, a reversal of underwater mortgages, and easier credit will free Americans up to move. But next time they’ll choose smaller homes in more affordable locations. Redfin is predicting that new lending regulations–which make it harder to borrow more–will send Americans to less expensive hubs like Portland, Denver, Austin, Richmond, Dallas, Houston, San Antonio, Atlanta, and Raleigh.
8. Foreclosures will significantly slow
The red hot foreclosure market has slowed, with September 2013 the 36th straight month of year-over-year decreases in foreclosure activity, nearly 33% down from the end of 2012. The declines should continue with the overall housing recovery.
9. A decline in affordability
Despite the slower pace of price increases, home affordability will decline as mortgage rates rise. The real culprit is income levels, which aren’t keeping pace with the increases in housing costs. In 2013, the National Association of Realtors’ Home Affordability Index dropped to a five-year low. Experts predict the trend will continue in 2014.
10. An easier home buying experience
Amid the housing crisis, investors, not owner occupiers, bought as many as one out of every five homes in America, according to Redfin. The perfect storm of increased inventory, higher prices, and fewer foreclosures means that investors are stepping out of the buying market, giving way for regular single family buyers. This, coupled with easing credit requirements, and the housing buy market begins to look more normal. “All in all, more inventory, less competition from investors, and more mortgage credit should all make the buying process less frenzied than in 2013,” says Trulia.
For more information about Palos Verdes Real Estate and South Bay or buying and selling a home on the Palos Verdes Peninsula, visit my website at http://pvbrokers.net . We provide specialized attention for all your real estate needs in the South Bay Los Angeles and the Palos Verdes Peninsula. We would love to hear your comments or suggestions.
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