As 2014 begins, Trulia’s Jed Kolko has made his annual real estate market predictions for the new year. Throughout 2013, the real estate market continued to stabilize, and is almost back to normal (in San Francisco, at least), benefiting from higher sales prices and more sales volume. Still, the effects of the housing crash linger, in the form of high barriers to home ownership and declining affordability.
The first prediction for the real estate market for 2014 is that housing affordability will continue to worsen. Although rising home prices are expected to slow down, they will still rise higher than incomes and rents, and mortgage rates are expected to rise as well due to the strengthening economy and Fed tapering. Buying will still likely be cheaper than renting, at least at the beginning of the year, though that could change if prices go high enough.
The second prediction for 2014 is that the home-buying process will get less frenzied. More inventory will come on the market next year, due to an increase in new construction and rising home prices that allow sellers who used to be underwater to recover. Individual home buyers shouldn’t have to compete as much with investors, who are pulling back from the market somewhat. And the new mortgage rules in 2014 should help banks become more confident about lending to new home buyers, making more mortgage credit available.
Third, repeat buyers are likely to be the dominant market next year. Investors avoid high prices, and first-time buyers can’t afford them; it’s the people whose existing homes have risen in value that will be most willing to fill the gap. Down payments are easier if you already have equity in your current home, so repeat buyers will have an easier time overcoming the affordability barrier.
While prices aren’t expected to rise as much in 2014 as they did in 2013, it will be more important to watch where they slow most and why. Kolko explains:
€œ If prices are slowing for the right reasons, great: growing inventory, fading investor activity, and rising mortgage rates are all natural price-slowing changes to expect at this stage of the recovery. But prices could slow for unhealthy reasons, too: if we have another government shutdown or more debt-ceiling brinksmanship, a drop in consumer confidence could hurt housing demand and home prices. Where prices change matters, too. Slowing prices are welcome news in overvalued or unaffordable markets, but markets where prices are significantly undervalued and borrowers are still underwater would be better off with a year or two of unsustainably fast price gains.€
For more information about the current housing market in San Francisco, visit our €œHow’s The Market€ page, or contact local real estate agent Rommel Yema at 650.291.4607 or firstname.lastname@example.org.
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