If you’re looking to buy a new home this year, there are a few forecasts on markets and mortgage loans from industry experts that might help to guide you through the buying process or at least enable you to make more-informed decisions. Tighter loan requirements, fewer foreclosures and growing inventory are just a few examples of home buying trends in 2014 in store for home buyers.
While tighter supplies in early 2013 saw prices escalate, don’t expect to see a repeat of an inventory shortage this year. Greater inventory will be due to two factors:
Expect inventory to gravitate toward more traditional levels, easing the lack of supply to meet demand. This is primarily good news for home buyers.
That doesn’t mean prices aren’t going to continue to edge upward. Despite slight increases in inventory, home prices are expected to continue to rise, likely from 3 to 5 percent in the coming year.
This compares to last year’s average of 5 percent nationally, buoyed by some regions with increases of 20 percent or more. Most experts agree that gains saw in 2013 were helpful to the recovering market and the economy in general. But some of the extremes in price gains are not sustainable over the longer haul, which is a good thing since it would prove unhealthy for the market longer term.
Continued rising prices and home values will also be the ticket out of an underwater mortgage situation for some homeowners, as they finally regain positive equity status, a trend that got a foothold in 2013.
Experts predict a lot of interest in some of the comparatively lower-cost metro areas. Among those cities making the “hot markets to watch” hit list most often with forecasters are:
Expect existing home sales to remain close to steady with last year’s figures. Most experts are predicting about 5.1 million for 2014. This compares with 2007 levels, but remain below the inflated levels experienced just prior to the housing crash.
New home sales have not recovered quite as quickly, but are expected to continue to make progress in 2014, though there is likely to still be a significant gap between what occurs and the 700,00-a-year mark generally considered healthy. Construction will still not quite reach normal levels this year, but buyers can expect this segment to strengthen significantly.
Interest rates are expected to rise throughout 2014, with some predicting it will reach 5 percent by the close of the year. Keep in mind, however, that mortgage rates in the 5 percent range are still considered very low. Prior to 2008, when the Fed made the decision to buy $85 billion in debt each month, the three-year average interest rate was a whopping 9.2 percent, never dipping under 5.8 percent.
Industry experts seem somewhat split on what prospective buyers can expect in 2014 by way of financing. Most cite the more stringent loan requirements put into place as evidence that getting a mortgage loan will be more difficult this year than in the past, with the possibility that some may be shut out of the process altogether.
Others point to rising interest rates as catalyst for making it easier to get a loan as lenders—facing a dwindling supply of refinances— compete for buyers by loosening their lending standards.
While price increases are expected to be more modest in 2014, rising mortgage interest rates are still likely to cause home affordability to decline.
Another significant factor impacting affordability? Income levels have not kept pace with growing housing costs, though that factor should ease somewhat through 2014. Last year saw home affordability drop to a five-year low, not unexpected in a recovering market. Most expect that trend to continue in 2014.
Another hallmark of 2014 will be a less robust market of distressed homes. While there were 6.5 million homes in negative equity status as the third quarter of 2013 wound down, you can expect that number to drop significantly this year.
Improvements in their equity situation may be the nudge some fence-sitting sellers need to get into the market, further impacting available inventory for buyers.
Buyers should expect fewer foreclosed and distressed properties to become available, however. The once-booming foreclosure market began tapering off significantly in the last half of 2013, and that trend is expected to continue throughout 2014 as the housing market continues to recover.
Buyers looking to purchase in 2014 will find fewer investors to compete with than during the height of the housing market bust. Increased inventory, fewer foreclosures and higher prices will make the market less appealing to investors, paving the way for the average home buyer to turn a deal. Most experts agree that growing inventory and fewer investors will make for a more typical housing market and buying process than was seen in 2013.