Real Estate Forecast for 2014

by on January 3, 2014Madhusmita Bora

Experts are predicting changes in the real estate market during 2014Last year was a stellar year for the housing market. Recovery was in full steam with home prices appreciating, sales skyrocketing, foreclosures declining and mortgage rates still within an affordable range.

The trends upped builder and consumer confidence and unleashed a fresh lease of life on the economy. But, last year’s act would be a tough one to follow.

This year probably won’t be as exciting, according to the USA Today. Mortgage rates are expected to climb, making home buying less affordable for many potential buyers. There also won’t be any double-digit price gains, according to the report, and home sales will likely remain at the same level as 2013.

But, that shouldn’t be a cause of dismay. “You want boring in the housing market,” Svenja Gudell, Zillow director of economic research, told the USA Today.

Here’s what’s to expect from the market this year.

Home Prices to Have Single-Digit Growth

Home prices were rocking last year. Year-over-year, prices were up 12.5 percent in October, according to CoreLogic. According to the Standard & Poor’s Case-Shiller index, prices are 20 percent off their 2006 highs. That’s after declining more than 30 percent. Those numbers are hard to match.

Zillow is predicting only a 3 percent increase in prices this year, while Economist John Burns foresees only a 6 percent gain. What this tells us is prices will only see a modest increase this year. We will also see fewer investors than we saw in 2013.

Mortgage Rates to Rise

The only bummer for this year could be the mortgage rates. Average rates for a fixed 30-year mortgage will rise to 5.5 percent by the end of this year, according to Lawrence Yun, NAR chief economist. That’s bad news for many potential homebuyers, who may get cut off from the market for affordability reasons.

In the last year, with the economy improving, rates rose 1 percent. They’re expected to continue the upward climb as the Federal Reserve slows down its monthly bond-buying program.

New Home Sales to Increase

Like home prices, existing home sales also started to decline toward the end of 2013. According to the National Association of Realtors, existing home sales slipped in November for the first time in 29 months.

The decline, of course, is tied to rising interest rates and declining inventory. The numbers aren’t a cause for worry yet, according to USA Today. Home prices are still up and housing starts are also on the rise. New home construction should fix the inventory shortage.

According to the NAR, existing home sales are expected to be about 10 percent up in 2014 compared to the prior year. That’s almost back to 2007 levels.

“Look for fewer bidding wars and a less frantic market,” Glenn Kelman, CEO of Redfin, told USA Today.

Sales of new homes, which constitute a small market segment, have more growth opportunities this year. New home sales hit an annual pace of 464,000 in November. That’s up almost 17 percent from a year ago. The only concern is they are still below the 700,000-a-year pace that is the benchmark for a healthy market.

Housing Construction Trailing

According to the Commerce Department, housing starts topped 1 million on an annual basis in November, signalling some improvement in that sector. Although that’s almost a whopping 30 percent gain from a year-ago period, it’s still far below what’s considered to be normal. Housing starts were averaging about 1.5 million before the boom.

The construction sector is expected to continue to lag again this year, but it will gain some traction and will be the main driving force behind the market recovery, according to USA Today, which cited the investment manager Goldman Sachs Asset Management.

Housing starts are expected to increase 20 percent annually for the next few years.

{ 3 comments… read them below or add one }

Pat Hiban February 16, 2014 at 6:32 pm

Rates will go up I agree. That’s why I just put money into fund that is shorting low interest rates. Etan Vance Floating Rate Fund. I call this putting my money where my mouth is. It will be interesting to watch what the lack of supply does to many markets. I see some different things happening in hot markets like Dallas TX and Ann Arbor Michigan where the inventory is at 2005 levels.
Pat Hiban

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Jared Lee January 12, 2014 at 11:35 pm

The amount of younger people that will be able to buy homes will increase this year do to the job market being healthy over the past few years, and financials will be strong lead by equity moral turning a new face of confidence. These two economic factors will be the back bone as to why the housing sector exceeds 2013 numbers. The prime rate set by the chef financial executive officer out increase for the stability of the dollar, but wont take that big of an effect on the mortgage market as people are already choosing mortgages from the private sector as there a better deal. So competition will keep unsubsidized mortgage rates in a range consumers are comfortable with. Current home owners in MN will see at least an 8-14 percent gain in equity. ~ Jared Lee

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Todd Conklin January 4, 2014 at 11:31 pm

Although I have enjoyed the fast pace and unpredictability of 2013 I’m not opposed to the “boring housing market” that 2014 may bring. The only thing I think is unfortunate is that the rising interest rates may keep some people out of home ownership in 2014.

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