2014 Real Estate Will be Influenced by 4 Factors

Eager buyers shopping for homes in today’s modestly recovered housing markets might be disappointed to discover not many homes are available for sale. This shortage of inventory means homebuyers in some areas have but few — if any — for-sale homes to choose from.

Home Prices Helping

Rising home prices can motivate owners to sell, increasing inventory.  Prices have been going up, but were still short of their housing-boom peaks in many areas as of November 2013. Prices aren’t consistent throughout the U.S., however.  In 2013, prices in Colorado, Iowa, North Dakota, Oklahoma, South Dakota, Texas, Vermont and Wyoming and Washington, D.C. hit new peaks. But prices in Nevada, Florida, Arizona, Rhode Island and Illinois were still far lower than their peaks last year.  Market observers believe the home-price gains we witnessed in 2013 won’t sustain throughout 2014. Overall, the recovery in housing markets is expected  to persist in 2014, but in a context of flattening gains for home prices, higher inventory levels and firm mortgage rates and underwriting standards.

Returning Home Equity

Rising home prices can float homeowners into a positive equity position, enabling them to sell without the added challenges of an underwater mortgage. Rising price haves helped homeowners regain lost equity in 2013. Negative equity is expected to decline further this year as housing markets continue to improve. Again, though, local markets aren’t all the same. In fact, just five states — Nevada, Florida, Arizona, Ohio and Georgia — accounted for over 36 percent of the country’s negative equity.

Shrinking Foreclosure Sales

Bank foreclosures also contribute to the supply of for-sale homes. But the supply of these properties, known as “shadow inventory,” is drying up.  The shadow inventory continues to decline, decreasing at an average monthly rate of 46,000 units over the last year. There is more to be done, but the trend is in the right direction.  Different states once again have different situations, however.  Florida, Michigan, California, Texas and Georgia accounted for almost half of foreclosures completed nationally in the 12 months ended November 2013, while Washington, D.C., North Dakota, Hawaii, West Virginia and Wyoming had the fewest foreclosures during that period.

More New Homes Will Help

Construction of new homes also boosts for-sale inventory. Housing starts rose to a five-year high in 2013, providing fresh evidence of the housing recovery’s persistence, according to the National Association of Home Builders, a trade group in Washington, D.C.  With 2 million residents in Southern Nevada, we normally need about 15,000 (homes) on the multiple-listing service. We are running at about 8,000 — it’s a nationwide trend because of the lack of construction starts in the last few years. Construction is helping to alleviate the supply shortage in the Boston area, in part because infill projects sometimes result in two homes where only one previously existed.  One single-family house that needed a lot of work was sold and now two big townhouses are replacing it. It’s taking a property that’s not very palatable or marketable to buyers and by renovating it, adding a new housing unit — or two.