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Home prices will rise in 2014 but at a slower, more steady pace compared with historical trends.
The housing recovery has pushed up home prices nearly everywhere. In the past year, home prices rose in 225 of the 276 cities tracked by Clear Capital, a provider of real estate data and analysis. (See how home prices are shifting in 276 metro areas.) Prices nationwide increased by 10.9 percent, pushing the median price for existing homes up by $30,000, to $215,000. For people who have waited to sell their home or refinance their mortgage, that’s good news. (Bing: How are interest rates looking this week?)
Rising home prices in Seattle enabled Mike and Kristin Litke to refinance their first mortgage last summer and pay off a second mortgage that had an 8.2 percent interest rate. The Litkes, who bought their three-bedroom, 1.5-bath home for $512,500 in 2007 at the peak of Seattle’s housing market, had used the second mortgage to avoid paying private mortgage insurance. In 2010, just as home prices in the area hit a trough, they refinanced their first mortgage to a 30-year fixed rate of 4.375 percent but were stuck with the second mortgage because they didn’t have enough equity to do a “cash-out” refi.
This time, however, their home appraised for $521,000, allowing them to refinance into one 30-year, fixed-rate mortgage of $416,800 at 4.25 percent. They have reduced their monthly payment by $360, giving them some wiggle room in their budget and providing an infusion of college-savings funds for their kids: Stephen, 3½, and Stella, 10 months.
In 2013, a sense of urgency drove traditional buyers hoping to take advantage of still-affordable home prices and historically low mortgage rates. Buyers found selection limited and were often forced into bidding wars with investors and other buyers who paid cash. Sellers reaped the rewards in terms of quick sales, often above the asking price.
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Almost half of the cities tracked by Clear Capital experienced double-digit increases in home prices, led by Las Vegas, with a gain of 32 percent. Such spikes reflected a continuing “correction to the overcorrection,” says Alex Villacorta, vice-president of research and analytics for Clear Capital. Buyers and investors rushed in to snap up homes with prices that had fallen too far. Homes continue to be affordable, despite recent run-ups — on average, prices are still 31.5 percent below their 2006 peak. The percentage of monthly family income consumed by a mortgage payment (assuming a mortgage rate of 4.1 percent) is just 15.6 percent, on average, compared with 23.5 percent in mid 2006.
“Houses are very cheap,” says David Stiff, principal economist at CoreLogic, a property and mortgage-data analytics company.
Market observers agree that home prices will rise in 2014, but at a slower, more steady pace compared with historical trends. Clear Capital forecasts that home prices nationally will rise by 3 percent to 5 percent in 2014, about the historical average. Kiplinger expects an increase of 4 percent.
“The most notable thing about 2014 will be how un-notable 2014 is,” Villacorta says.
Meanwhile, the Conference Board, a nonprofit association of businesses, found that the percentage of consumers who intend to buy a home in the next six months was the highest since 2000. Adding to the push: pent-up demand among young people who, hampered by lack of jobs or insufficient income, have been living in their parents’ basements or sharing apartments with roommates. Celia Chen, a housing analyst with Moody’s Analytics, says Moody’s expects the economy to expand enough in the coming year to enable young people to begin moving out. They’ll probably rent first, but low vacancy rates and higher rents will prompt some renters to move on to homeownership.
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As home prices continue to rise, more owners who had been underwater — meaning that they owed more on their mortgage than their home was worth — will emerge from the sidelines and start selling and buying homes. CoreLogic reports that almost 3.5 million homeowners were lifted out of negative equity between the end of 2012 and mid 2013. Nevada, Florida, Arizona, Michigan and Georgia have the highest shares of underwater homeowners.
A sellers market
In the past year, sales of existing homes and condos rose by 11 percent, to 5.29 million — almost the highest level in four years. The National Association of Realtors expects sales to remain about the same in 2014. Sales nationally have increased across all regions and in all but one price category, signaling a broad-based recovery.
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Although sales of entry-level homes (priced at $100,000 or less) have fallen by almost half in the past year in the West, they’re still rising in the Northeast, where the job recovery has lagged behind other regions. Sales of homes priced between $750,000 and $1 million have risen the most.
“A consistent stock market recovery for a prolonged period has opened up the wallets of upper-income homeowners,” says Lawrence Yun, chief economist for the National Association of Realtors.