The U.S real estate market showed encouraging signs of life in 2013, exceeding expectations of many economists and industry experts. The combination of record low interest rates and low housing inventories contributed to a surprising rise in home prices. In 2013, we witnessed the return of housing bidding wars in select markets such as Seattle and Oakland. New housing starts jumped to the highest level in over five years. And permits for future projects also finished near a five year high.
These positive trends bode well for the new year.
Here are the top 4 real estate trends we’re likely to see in 2014.
1. New Housing Starts Should Continue to Increase.
Housing starts jumped to a 1.09 million annualized rate in December 2013, exceeding all forecasts and the most since February 2008. New housing permits also rose to a five year high, indicating the pickup will be sustained into 2014. According to David Sloan, a senior economist at 4Cast Inc., widely considered the top forecaster for housing starts over the past two years, “the economy seems to be picking up and there’s quite a lot of pent up demand. Even if the Fed does start to taper, I think the housing market will prove resilient.”
2. Mortgage Rates Are Expected to Rise.
Interest rates for 30-year mortgages increased by approximately 100 basis points in 2013 and are likely to increase further in 2014. The new chairman of the Federal Reserve, Janet Yellen, is expected to continue the policies of Ben Bernanke. This includes keeping rates low by buying mortgage-backed securities. However, the Fed has considered tapering its bond purchases as the economy improves, which could lead to a slight increase in interest rates across the board.
3. Rise in Positive Equity for Homeowners.
National home prices finished 2013 up 11.5% for the year, marking the best performance since 2005. Rising prices helped 2.5 million owners who were previously underwater (owe more on their outstanding mortgage balance than the value of their homes) regain positive equity status during the second quarter of 2013. However, about 7.1 million homeowners were still in negative equity at the time and an estimated 10 million homeowners remained “under-equitied,” with less than 20% in home equity.
With prices expected to continue to rise in 2014, albeit at a slower rate, more homeowners could potentially be lifted into positive equity status meaning that it would be easier for borrowers to qualify to refinance and make their mortgages more affordable.
4. Declines in Home Affordability Are Expected.
The NAR Home Affordability Index, which compares home prices with median income levels, dropped to a five year low in 2013 as home price increases outstripped income gains. With housing values expected to continue to grow in conjunction with a rise in mortgage rises, the affordability index will slide further down in 2014.
From an investor’s perspective, with rising prices and increasing demand for housing, now is a good time to invest in real estate and buy an investment property. Using an investment property calculator like PropertyREI can easily help you analyze a property’s cash flow and return on investment.
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