The 2014 Real Estate Trends
Mortgage rates will rise in 2014
Online real estate database Zillow predicts rates will hit 5% by the end of 2014–well up from the 4′s and 3′s of late, but still well within normal levels. New Fed Reserve chief Janet Yellen is expected to continue Ben Bernanke’s policy of keeping mortgage rates low by buying blocks of mortgage-backed securities, but the Fed’s bond-buying taper could push rates higher. “While this will make homes more expensive to finance – the monthly payment on a $200,000 loan will rise by roughly $160 – it’s important to remember that mortgage rates in the 5 percent range are still very low,” says Erin Lantz, Zillow’s director of mortgages. Really. “Prior to the Federal Reserve’s 2008 decision to buy $85 billion in debt per month, the 36-year average was 9.2%, and never below 5.8%,” notes Glen Kelman, CEO of Redfin.
Affordability will decline
Despite the slower pace of price increases, home affordability will decline as mortgage rates rise. The real culprit is income levels, which aren’t keeping pace with the increases in housing costs. In 2013, the National Association of Realtors’ Home Affordability Index dropped to a five-year low. Experts predict the trend will continue in 2014.
Ownership will decline
In 2014, Zillow predicts, homeownership rates will fall below 65 percent for the first time since 1995. “The housing bubble was fueled by easy lending standards and irrational expectations of home value appreciation, but it put a historically high number of American households – seven out of ten – in a home, if only temporarily,” says Humphries. “That homeownership level proved unsustainable and during the housing recession and recovery the homeownership rate has floated back down to a more normal level, and we expect it to break 65% for the first time since the mid-1990s.” Watch also for adult children to move out of their parents’ homes, starting their own households and further decreasing the overall homeownership rate.
Nationally, Vacancy Rate up this year
In the third quarter of 2013, 10.2% of housing units were vacant, excluding vacant homes that the Census classifies as “seasonal,” such as beach homes. Vacant homes include those for sale or for rent, as well as homes “held off market” for various reasons. This vacancy rate of 10.2% – the share of homes that are empty – was unchanged from 2012 Q3 and well above the pre-bubble level. In fact, the vacancy rate today (10.2%) is closer to its peak during the recession (11.0% in Q3 2010) than before the bubble (8.8% in Q3 2000).
Mortgages Tougher for Credit-Challenged this year
Prospective borrowers with poor credit and limited documentation of their income and assets have found it much harder to get a mortgage than other mortgage applicants following the housing bubble, according to the latest MarketPulse report from CoreLogic. “Underwriting eligibility in the current market requires borrowers to possess good credit and the ability to document their loans fully,” said the report, which compares first mortgages originated in October 2013 against mortgage origination figures before 2004.
Source: Lee Honish on Jan 23, 2014
