The housing market may quite return to normal next year, but it’s getting there.
Dusting off their crystal balls, real estate experts can at least spy the path toward for the sector in 2014. According to real estate listing and research site Trulia, sales and prices of of non-distressed homes are almost back to normal, while foreclosures are ebbing and fewer homeowners are behind on their mortgage payments.
Yet while this march toward a more stable housing market is a welcome one, it’s creating new problems along the way. Expect less highs and lows next year, but not smooth sailing. Here are five trends to look for in the new year:
Mortgage rates will top 5 percent. This is a matter of when, not if, as well as how high interest rates on mortgage loans. As 2013 draws to a close, mortgage rates have increased 1 percent over last year, rising on the back of a strengthening economy. Stronger economic growth will eventually lift the Federal Reserve’s hand out of the mortgage market in 2014, causing it to taper its bond-buying stimulus program. When the Fed merely mentioned tapering the program last June, rates jumped nearly half a percentage point overnight.
Housing market research firm Zillow predicts that interest rates for a 30-year fixed-rate mortgage will surpass 5 percent for the first time since early 2010.
“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,” said Erin Lantz, Zillow director of mortgages, in an e-mail.
Mortgages will be easier to secure. Although loan rates are likely to rise, getting a mortgage should be easier next year.
“Rising rates means lenders’ refinance business will dwindle, forcing them to compete for buyers by potentially loosening their lending standards,” Lantz said.
One wild card is a new federal rule kicking in on Jan. 10 that sets mortgage standards. Lenders that don’t follow the rules will face greater legal liability and potential penalties if that loan defaults. It remains to be seen whether that could constrain lending.
Inventory will stabilize. The National Association of Realtors, a Washington trade group, characterized 2013 as the “year of low inventory.” That wasn’t all bad, with low inventory driving most of the explosive price gains in the spring and summer. But the shortage was short-lived, as inventory has since returned to 2012 levels. Cash-carrying investors are also exiting the market.
Trulia chief economist Jed Kolko said that means home buying will look far less frenzied than it was this year.