2014 Outlook: Home Prices to Increase
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. 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. 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. 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. Market observers agree that home prices will rise in 2014, but at a slower, more steady pace compared with historical trends. Forecasts predict that home prices nationally will rise by 3 percent to 5 percent in 2014, about the historical average. 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.
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. Nationally, the supply of homes for sale stands at five months’ worth. (Months’ supply is a measurement of how long it would take to sell everything at the current pace of sales. A market balanced between buyers and sellers has about six months’ supply of homes.) The current level slightly favors sellers, but in many cities inventory is much tighter. For example, the Washington, D.C., suburbs of Montgomery County, Md., and Northern Virginia had about two months’ supply in September. The housing market has moved toward a shortage that will persist through 2014.
In some cities, institutional investors have been scooping up properties to rent out. Plus, builders cut way back on new-home construction during the bust, and homeowners who bought at the top of the market are still reluctant to sell until they can recoup more of their investment. Some are still underwater, unable to pay off their mortgage with what they’d get for their home. Distressed properties are still adding to the supply of homes nationally, but foreclosure filings are falling. Fewer homeowners are losing their homes as the economy improves, home prices (and home equity) rise, and lenders agree to more short sales (homes sold for less than their owners owe on their mortgages). We’re in the home stretch of getting through the foreclosure crisis. But we won’t cross the finish line, with filings back to pre-crisis level, until early 2015 studies suggest.