2014 looks to be the year of the repeat home buyer, as interest rates rise and home prices increase, worsening affordability will discourage some first time home buyers. These won’t be the only changes. Foreclosures’ slow inventory will begin to stabilize and the process of getting a mortgage will be less hectic.
Barring any economic crises, the housing market should continue to normalize. Here are 5 ways that the 2014 housing market will be different from 2013:
• Home Prices Will Rise, Affordability Will Worsen. Buying a home will be more expensive in 2014 than in 2013. The median price of a home in Jackson County increased by 18.2% in 2013, bringing it up to around $195,000. Although this is still far below the 2005 median of $271,500, it’s a nice increase. Mortgage rates will also be higher in 2014 than in 2013, thanks both to the strengthening economy and to Federal Reserve tapering. We are still looking at an incredible low 4.5% interest rate, but this is up from the 3.5% interest rate of a year ago. As of September 2013, Trulia has reported that buying was 35% cheaper than renting nationally. Buying also beat renting in all of the 100 largest metros surveyed.
• Home Buying Process Improves and Inventories Increase. Home buyers in 2014 might kick themselves for not buying in 2013 or 2012, when mortgage rates and prices were lower, but inventory will be increasing and lenders will be less preoccupied. There will be more inventory on the market later this year, partly due to new construction, but primarily because higher prices will encourage more homeowners to sell – including those who are no longer underwater in their mortgages. Finally, mortgage approvals should be easier to get because higher rates have slashed refinancing activity and pushed some banks to ramp up their purchase lending. New mortgage rules coming into effect in 2014 will change which types of loans are more competitive. It seems like government backed loans will soon be less competitive to those offered by commercial banks, hopefully making them more willing to loan. All in all, more inventory, less competition, and more mortgage credit should combine to make the buying process easier in 2014 – for those who can afford to buy.
• The Year of the Repeat Buyer. 2013 was the year of the first time home buyer, but 2014 will be the year of the repeat home buyer. Investors will still be a factor in 2014 but higher prices mean that the return on investment falls. Repeat buyers selling their current homes which have risen in value, and either relocating or upgrading, will make up the majority market segment this year. The amount of Escapees from nearby states will continue to increase as Oregon has the largest percentage of people moving into the state vs. people moving out of the state compared to any other state. We will see a heavy increase in the amount of Retirees as they have been waiting through six years of recession to finally see their stock portfolios rebound and their home equity swell to make retirement possible. Retirees will find Southern Oregon and our unique combination of nature, culture, affordability and great health care to be a suitable place to retire.
• Foreclosure Activity will Slow. Foreclosure sales are likely to play a minimal role in the housing market in 2014. They are not gone but they are less important. Foreclosure inventory has dropped in the U.S. to multi-year lows, down nearly 33 percent since the end of 2012. The numbers of new foreclosures were down 39 percent in the third quarter of 2013 to the lowest levels since the second quarter of 2006. In 2013 foreclosures amounted to only 7.1% of the homes sold in Jackson County.
• Rental Market Continues to be Strong. Throughout the recession, investors bought homes and rented them out, sometimes to people who lost a home to foreclosure. Going into 2014, we will see fewer families losing their homes and fewer investors buying single family homes, preferring instead multi -unit complexes with higher returns. Increasing prices of both homes and mortgages will make it more difficult for renters to buy their first home. Ironically, the economic recovery means that the overall homeownership rate will probably decline, as young adults move out of their parents’ houses and form their own households they will add to the amount of renters, not buyers. In 2014, we will continue to see an increase in demand for single family homes for rent but a decrease in supply.
So, hang on! 2014 will be another year of great recovery for the housing market. We’ll see increasing equity for homeowners, continuing low interest rates, & increasing market inventory. Welcome to “The year of the repeat buyer”!