Housing Recovery December 12, 2013

6 Housing trends to watch for in 2014: is this the year of recovery?

By Tara Steele, Agent Genius

Housing trends in 2013 vs. 2014

As the curtains close on 2013, the industry is squarely focused on the coming years, hoping for a full economic recovery, but is 2014 the year of the housing recovery, given the many years this sector has been beaten down and struggled to regain much lost ground?

“In 2012 we saw the housing market recover and, going into 2013, we expected continuing recovery,” said Lawrence Yun, chief economist of the National Association of Realtors (NAR). “Instead, the recovery accelerated a lot faster than we anticipated, which was great for sellers and for the 75 million homeowners who saw their home values appreciate.”

Part of NAR’s exceeded expectations is in their caution in having optimism, particularly with their chief economist having the authority to be a true economist rather than a cheerleader, which the trade group was accused of with Yun’s predecessor.

But is any of this good enough reason to hold out hope for 2014 being the great year of recovery? Let’s look at the 7 housing trends realtor.com has outlined as a recap for 2013, and we will forecast how each factor will change in 2014, and whether or not we’re in for a big recovery.

1. Housing prices rose quickly

According to realtor.com research, the national median listing price was $179,900 in January 2012 and rose to $180,000 by December 2012, and the pace of price appreciation accelerated quickly over the year to reach a median list price of $199,500 by September 2013.

In 2014, economists agree that home prices will continue to rise, which homeowners that are still underwater desperately need, but no extreme surge is expected, so watch for a healthy pace of improvement to continue in the coming year.

2. Mortgage rates remained low

“We expected mortgage rates to rise in 2013, and they started to increase in the late spring, but they’re still very affordable when you look at rates on a historical basis,” Yun said. “They just aren’t at the super-low point we saw earlier.” According to Freddie Mac, 30-year fixed-rate loans were as low as 3.45 percent in December 2012 and rose to 4.49 in September 2013.

In 2014, some believe rates could dip, some believe they will jump, but the truth is that no one knows, because there are so many moving pieces that could shift the ultimate outcome, but based on 2013, we predict that they will remain low but will, in fact, increase slightly.

3. Bidding wars

The combination of rising prices, low mortgage rates and low inventory led to a sense of urgency among buyers and the return of bidding wars, said Don Frommeyer, president of the National Association of Mortgage Brokers. According to realtor.com research, inventory in 2012 reached a high of 2,083,710 homes on the market, then steadily declined to a low of 1,583,497 homes in February 2013. At the end of September 2013, 2,210,000 homes were for sale, approximately a five-month supply.

In 2014, bidding wars will become the norm in many cities, but not nationally. Smaller cities or areas with lower demand will not necessarily see bidding wars, particularly in the areas most hard hit by the housing crash. Consider this a San Francisco issue, not a Pierre, South Dakota issue.

4. Housing affordability

In one statement, Dr. Yun said, “Housing affordability has come down a little this year because of double-digit home value appreciation and the fact that income isn’t rising in comparable amounts. Rising mortgage rates, even though they’re still low, also have an impact. While affordability right now is at a five-year low, it’s still the fifth highest for the past 30 years.”

Later, he noted that a decline was expected. “Affordability has fallen to a five-year low as home price increases easily outpaced income growth,” he said. “Expected rising mortgage interest rates will further lower affordability in upcoming months. Next month we may see some delays associated with the government shutdown.”

In 2014, we predict that housing affordability will decrease, in fact, it will diminish in specific areas like San Jose or Stamford. Overall, housing will remain affordable, and may even inspire sales, but this metric will be inconsistent across the nation.

5. Cash buyers

Dr. Yun said a continuing surprise is that about one-third of all home purchases were made with cash, a market share that has been consistent for the past three years. While some of these cash buyers are from overseas and some are institutional investors, others are “mom and pop” investors who have had trouble getting financing.

“Even some owner-occupant buyers are cash buyers because of the excessively tight underwriting standards for loans,” Yun said. “Some people are getting help from relatives to buy, and then they plan to take out a home equity loan later to repay them.”

In 2014, cash buyers will remain around one in three, and not just for investment reasons, but because, as Dr. Yun mentioned, lending remains tight. Underwriting may loosen up a bit in 2014, but as an overreaction to the housing crash, it won’t be enough to get buyer behavior to a pre-recession norm this year.

7. Rents on the rise

“Right now we’re seeing replenishment of renters who want to buy homes,” Barry Habib, co-owner and chief market strategist for Residential Finance Corp., said. “At the peak in 2002, nearly 70 percent of people owned homes and 30 percent were renters; now 65 percent of people are homeowners and 35 percent rent. Not only are rents rising faster than home prices in many markets, but there’s pent-up demand from people who don’t want to live at home with their parents and who want to buy a home.”

In 2014, all economists agree that rents will increase, anywhere from 3.0 to 5.0 percent nationally as vacancy rates remain at their best levels in years. It will continue to be a landlord’s market.

So will 2014 be the year of recovery?

On all accounts, housing will continue improving, on that we all agree, but expect to see a steady pace of improvement in the coming year, not a spike – consider it more of the same. Home prices, sales, rents, and mortgage rates will all continue increasing steadily, and while 2014 will not mark a complete recovery to pre-recession norms, this future year does hold a healthy pace of improvement in store.

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?-Steve and Sandra

Steve Hill and Sandra Brenner
Windermere Real Estate/FN
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Seattle WA 98133
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email: stevehill@windermere.com

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