As the year draws to a close, we are looking ahead to identify trends that we will see in 2014. To that end we have come up with four housing predictions for 2014, and have also determined which housing markets will be the hottest this coming year. Here they are:
U.S. home values will increase by 3 percent:
In 2013, home values rose rapidly (roughly 5 percent nationwide and more than 20 percent in some local markets) and while these gains were beneficial at the time to pull home values up from unnaturally low levels, they were also unsustainable. Many metros saw appreciation well above historic norms, sometimes 4 or 5 times their historic appreciation levels. This year, home value gains will slow down significantly because of higher mortgage rates, more expensive home prices, and more supply created by fewer underwater homeowners and more new construction.
Mortgage rates will reach 5 percent by the end of the year:
We believe that as the economy continues to improve, the Federal Reserve will start to taper their quantitative easing efforts, which, in turn, will cause mortgage rates to rise. We expect that they will exceed 5 percent for the first time since early 2010 by late next year. Because affordability is still high in most areas relative to historical norms, rising rates won’t derail the housing recovery. However, some areas will be impacted by rising mortgage rates more so than other areas, as some markets are very close to their historical affordability levels and will soon become unaffordable. Higher mortgage rates will put additional pressure on these markets, particularly some of the booming California markets.
It will be easier for borrowers to get a mortgage in 2014:
Despite higher mortgage rates, actually getting a loan will become easier next year. With less demand for refinancing, lenders will have to make up lost business by competing for new buyers and hopefully loosening their lending standards a bit.
Homeownership rates will fall to their lowest point in nearly two decades:
Homeownership rates have been falling for some time now, and we expect this decline to continue as foreclosures continue to displace homeowners and rental demand continues to be high.
To determine which markets will be the hottest in 2014, we combined data on unemployment rates, population growth and the Zillow® Home Value Forecast. Markets determined to be ‘hot’ are characterized by lower than average unemployment, population growth of greater than 2 percent during the past two years and are forecasted to have home value growth of more than 2 percent during the next 12 months. The list is intended to give an early view into housing markets that are likely to experience heavy demand for homes, as well as increasing home values.
The official press release can be found here.