Let me preview this by saying I don’t have a crystal ball (no one does), but the real estate market has a cycle and decent indicators. The real estate market is also a slower moving market so it allows us to see the patterns and make adjustments easier. With that being said, these are some of the trends I see for 2014:
1) Home Prices Increase: The majority of markets have already seen home prices normalize, some even close to pre-recession prices. We can expect moderate home price increases in 2014 with increases averaging 3-5%. The only markets that might exceed a normal rate of increase are markets where we continue to see low inventory and high demand.
2) Mortgage Rates Increase: NAR is forecasting 30-year fixed mortgage rates to hit 5.4% by the end of 2014. After December’s news from the Federal Reserve it will be interesting to see how much rates do increase. The point I want to make is that even at 5.4%, mortgage rates are still very reasonable and affordable. Also take into consideration that, for most Americans interest is deductible.
3) A Nation of Renters: We have seen a large increase in the development of corporate rental communities which leads me to believe that renters are here to stay. The “Millennials” as the generation is known, continues to rent for various reasons: substantial student loan debts, a delay in starting families, career minded individuals and dual income couples with little desire to have a family.
4) Standard sales and move up sellers: More homes will be entering the market in 2014 and these homes will be individuals that have been waiting for the market to improve so they can sell and move up or downsize. Negative equity has decreased substantially which is making many think that this is the moment to move before interest rates get too high. We should also see some of the people who entered the market at the bottom think about taking their new found equity out to move up.
5) Distressed Property Sales Decline: What we have seen as the norm, REO’s and Short Sales, are now less common. NAR (National Association of Realtors) expects distressed property sales will fall to about 8% of the housing market by the end of 2014, compared to 33% of the market at the height of the recession.
6) Job Growth and its effect on individual markets: Cities with low unemployment rates will experience stronger housing recoveries than those areas still struggling with slow job growth. It will be interesting to see where the national employment rate is this spring.
7) Small Investors Return: The all cash more institutional investor is now poised to sell their inventory and that is leaving a niche for the smaller investor (flipper) to return to the market. The smaller investor will have to find creative strategies for finding “deals,” with REO’s, foreclosures and short sales being very limited.
8) Condo Development: The condo market has improved some, however not enough for development. There are enough resellers at this point in time. Developers are however building apartments with the option to convert to condos depending on market conditions.
9) Sellers’ Market: Although it was a sellers’ market for some segments of the industry for the last 6-9 months of 2013, in 2014 we will see that expand. I think were we will see the biggest changes is the move up market.
10) Movement in “Smile States” – Northeast to the Sun Belt (Florida, Texas, Arizona, California), then back to the Northwest (Oregon and Washington). These states will see more activity in both resale and building than the Midwest.
There are still some good opportunities for the small investor, if you’ve been sitting on the sidelines waiting for the market to come around I suggest you considering moving very soon.
Diana D Hill