The 2013 the real estate market exceeded many expectations due to historically low-interest rates. Many economists agree that home values will continue to increase in the New Year. However, mortgage rates are also expected to continue rising preventing potential buyers’ abilities to afford making their move. So what can we expect in 2014? Based on 2013 real estate data, the housing recovery is expected to continue with prices staying on the uptrend. Here are the top 4 predictions for 2014:
More Inventory will be Available
According to Realtor.com, 2013 began with a significant shortage of inventory, however, that didn’t last long. By as early as February, the number of homes started to slowly increase, but the low home supply drove up prices. Analysts predict home values will continue to rise and homebuyers can expect a larger inventory as these higher prices draw in more would-be sellers. Redfin and Zillow are predicting that home prices will rise between 3% and 5%. According to Erin Carlyle of Forbes.com, “New construction and rising prices should bring more homes, both new and old, on the market in 2014, helping inventory to return to traditional levels.”
Mortgage Rates Are Expected to Rise
Homebuyers can expect interest rates to continue to rise due to the Fed’s consideration of tapering its bond-buying activity as the economy improves. Zillow predicts that rates will reach 5% by the end of 2014. However, even if rates reach the 5% range they’re still considered to be low.
Mortgages Will Be Easier to Get
“The silver lining to rising interest rates is that getting a loan will be easier,” says Erin Lantz, director of mortgages for Zillow. “Rising rates means lenders’ refinance business will dwindle, forcing them to compete for buyers by potentially loosening their lending standards.” According to Wall Street Journal’s Conor Dougherty, “Banks and mortgage lenders are facing big declines in volumes and profits as refinancing opportunities fade amid higher rates, which means competition to make loans to home buyers should increase.” Dougherty also says, “Rising home prices and falling mortgage delinquencies should also give lenders and mortgage-insurance companies more confidence.”
Affordability Will Decline
As mortgage rates rise, home affordability will decline. Income levels aren’t keeping up with the increase in housing costs, pricing most out of the market. In 2013, the National Association of Realtors’ Home Affordability Index, which compares home prices with income, dropped to a five-year low. Analysts predict the trend will continue in 2014.
After a roller coaster ride in 2013, the real estate market is expected to stabilize becoming more normal this year. Homes will be less affordable; however, it puts the market back in line for a healthier rate of growth. Market observers agree that although mortgage rates will increase and home prices will rise in 2014, they will be at a slower, steadier pace than compared with historical trends.