Could 2014 be the year the housing market really recovers?

by Owusu Kizito

From all indications and statistics available, the housing market recovery is well under way but not yet complete. Spring is the housing market’s time of greatest activity, and in 2014 the story of US real estate varies by location.
Spring in the United States means it’s time for the housing market’s months of greatest activity. Since the market has been such a wacky place for more than a decade now, it’s worth pausing for a moment on that word “recovery.”
The word doesn’t mean getting home prices back to pre-recession peaks. Those peaks, after all, were artifacts of an unsustainable boom. A better definition of recovery would be when local markets no longer have historically high rates of foreclosures and mortgage distress, and are experiencing a healthy and sustainable pace of home sales and construction. 2014 is poised to be an important transitional year. 2013 saw big gains in house prices, as buyers competed with cash-rich investors for access to a relatively slim inventory of properties for sale.
Now investors are backing off a bit. And many would-be buyers are feeling the pinch of higher prices. At the same time, those higher prices promise to lure more sellers to list their homes during the big spring sales season. That would help to create a market with a more balanced mix of buyers and sellers.
As it looks, “Things are moving in the right direction,” says Greg McBride, chief financial analyst at Bankrate.com, a financial information firm in North Palm Beach, Fla. He predicts that recent gains in home prices “will entice would-be sellers, but a more modest pace of home price appreciation will keep buyers active.” Mr. McBride calls conditions “pretty favorable for home buyers” because mortgage rates remain historically low while home prices “have not gotten anywhere near the nosebleed levels prior to the housing bust.” But if this is a market approaching greater normalcy, it’s still a market with challenges.
One is that household incomes aren’t rising as fast as home prices. Another is that potential first-time buyers aren’t finding it easy to save money for down payments. Many housing analysts see a pent-up supply of young Americans who want to step out of family nests to form households of their own. It appears that 2014 will be the year where we need to see the first-time home buyers step up to the plate in greater numbers, according to Daren Blomquist, vice president of RealtyTrac, an industry data firm based in Irvine, Calif. Rising home prices are a positive factor for a different category of buyers: people who want to move but have felt unable to sell their existing home.
What will the evolving mix of buyers and sellers mean for home prices this season and beyond?
The to-and-fro forces make this a tough market to forecast, but many economists see 2014 as a year of progress though at a slower pace, with modest gains in home prices for the nation on average. Already, an uptick in mortgage interest rates prompted a slowdown in the pace of price gains in many cities late last year, from New York and Washington to Phoenix and cities on the Pacific coast. Forecasting firm Capital Economics sees price gains slowing to perhaps 4 or 5 percent this year, compared with a roughly 12 percent pace seen last year. This scenario will possibly put the house price recovery on a more sustainable path. There exist the risks of a much less benign scenario in which mortgage-dependent buyers are unable to replace investors because of rising interest rates or tight credit conditions, which may see the trend of price gains potentially reversing course. At 4.37 percent, the average interest rate on a 30-year fixed mortgage has gone up sharply from about 3.5 percent last March.
RealtyTrac recently estimated that the average monthly payment on a median-price three-bedroom home (including principal, interest, insurance, taxes, and maintenance) has gone up 21 percent over the past year. Still, the overall housing market has been growing healthier. Rates of foreclosure are approaching pre-recession levels in a number of cities; even some where the boom and bust cycle was most extreme, such as Phoenix. And although coastal cities have returned to lofty home values, many US markets are priced in a reasonable zone relative to local incomes and rents. On average, US home prices have jumped about 22 percent from their recession low points, but won’t reach their boom-level peaks unless they climb that much again, according to the Urban Institute’s Housing Finance Policy Center in Washington.

Reference:
Trumbull, M. (2014). Could 2014 be the year the housing market really recovers? The Christian Science Monitor. Retrieved from http://www.csmonitor.com/Business/2014/0322/Could-2014-be-the-year-the-housing-market-really-recovers

Mr. Owusu Kizito has more than 15 years of experience in consulting, banking, financial analysis, project management, and process improvement. He is the President and CEO of Investigroup Companies. Mr. Kizito holds an MBA from Hawaii Pacific University and postgraduate law certifications from Harvard University. He may be reached directly on (908) 977-7320 or email him at okizito@investigroup.org.
Follow him on twitter for updates @okizito1.

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Posted by on Jun 15 2014. Filed under Community News. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry

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