Price Appreciation Projected To Slow In 2014

According to reports by Money Magazine, housing prices will continue to rise into the New Year, but only at about half the rate they did in 2013. This was to be expected, as this year’s rate of appreciation was almost unprecedented. On a national level, the average price of a home increased 12.5 percent. At the very least, a double-digit jump in prices should serve as an encouraging sign for the housing sector.

However, “for a sustainable recovery, you want to see more balance between buyers and sellers,” says David Stiff, chief economist at CoreLogic Case-Shiller.

Home sales will likely see modest growth next year, says Lawrence Yun, chief economist at the National Association of Realtors (NAR). The Case-Shiller index has projected home values to increase by as much as 6.8 percent in 2014. Strict underwriting practices by lenders, rising interest rates, and tight inventories in many markets will moderate sales growth. The agency projected home sales of about 5.12 million for 2014, which is close to the same level forecasted for 2013.

In addition to trending home sales, 2014 is predicted to be the beneficiary of improved inventory conditions. As recently as September, inventory levels increased 1.8 percent compared to a year earlier. The month of September was, therefore, the first time inventory conditions improved since 2011. However, wile improvements are expected to continue into 2014, expect the seller’s market to temper expectations. Analysts acknowledge that they expect inventory levels to remain tight.

What’s needed to spur stronger growth in the housing market is a marked increase in inventory through stepped-up new construction, because only more new homes will ease tight inventories and, in turn, help slow home price gains, helping affordability. Last year only about 900,000 homes were started, a 50-year low and half the amount that’s needed, Yun said.

A lack of distressed homes will likely serve to decrease investor activity, leaving more room for homebuyers to participate in the market. In fact, we have already seen investors shift their attention to alternative exit strategies, as distressed properties are harder to come by. Investors’ share of residential home purchases dropped from 23 percent earlier this year to 17 percent in September, according to the Campbell/Inside Mortgage Finance HousingPulse Tracking survey.

These conditions will most likely increase mortgage rates. As of now, analysts have projected the rate of an average 30-year fixed-rate mortgage to increase from 4.5 percent to 5 percent in the New Year. In addition to higher mortgage rates, buyers are going to be faced with tight underwriting requirements.