2014 Housing Market Predictions
Happy New Year! I cannot believe 2013 is over – it seems to have gone by so quickly, and now it is time once again for my New Year’s housing predictions. I must say a few months ago I was not so sure what the market would look like in 2014, and I thought it might end up being a slow year. However, the last several months have altered my opinion and I am excited about housing in the coming year. Here are some of my thoughts as to what may happen.
Buyer numbers will continue to stay strong. Judging from the frenzy in the last few months, combined with the low inventory levels common for this time of year, I think buyers will still be out there looking for property. The prospect of inventory surges has many buyers excited and ready to pounce. They especially will want to get into contract and lock down their rates before they begin to escalate, so I predict market times for desirable listings will continue to be shorter than normal (I am referring to the local North San Diego market, which has seen shorter market times in recent months – if you reside elsewhere check with your experienced real estate agent for specific data).
Interest rates will rise. You have all heard that rates will likely rise this year…it is pretty much inevitable. What we don’t know is when or by how much, and a lot of that depends on the economy in general (specifically jobs), and the strength of the housing market (which is multi-faceted – including resale, new construction, distressed properties, loan origination difficulties, etc.). The fact is that there will be escalations, and this tends to make potential buyers nervous, as they could price some out of desired markets and make loans harder to obtain. For this reason I think the buyer pool will stay strong and active. Capital Economics predicts that rates will reach 5% by year end, and 5.5% by the end of 2015. They also point out that higher rates could be a benefit to borrowers by causing a loosening in mortgage credit conditions due to fewer refinances.
Home prices will remain level or only increase slightly (“normally”). I am sure you have heard that the great climb is over, and I agree – prices will likely level off and only climb at normal paces – 4-5% a year. Capital Economics predicts that for 2013 home prices will be up by 11%, and that this year will slow to around 4%.
Investors will ease back, opening up inventory to first time and repeat buyers. The time for investors to snatch up great deals is pretty much over. There could still be some investor activity, but for the most part most investors will begin to back off . [If you are wondering where I get this information it is from my own investor clients, and from my first time homebuyer clients, who do not seem to have that cash buyer competition like they did for the last several years.] The exception is buy and hold investors, who need to sink their money somewhere for tax purposes. They will be looking for stable investments, and I think will focus on multi-unit properties like duplexes, triplexes/quads, and in some areas even apartment buildings. But looking at the big picture, I believe we will see less investor activity this year than we did in 2013 and especially 2012.
Distressed inventory will probably not rise. This category is a bit questionable because there are several factors in play that will determine what will happen to distressed inventory levels. For the most part, I think distressed inventory levels will remain lower, and in most areas we will not see excessive foreclosures and short sales. The surge in the market brought many homeowners out of negative equity, and allowed many to sell. Of course, changes in the economy (especially the job market) could have an effect on foreclosure activity. I also think the programs out there to help distressed borrowers could help people avoid foreclosure if used properly and early on. This prediction is based on the local market here in San Diego, and may be different in other markets.
Overall I believe this year will be another great year for the real estate market, and I am excited! Housing is still a great value, and the National Association of Realtors reports that housing has never been as affordable as it is now – in their past 40 year history. I hope you all have a wonderful year – good health and lots of happy times.
