With 2014 having finally come around, we’re poised at the start of what could be another healthy year for the housing market.
While many of us were naturally attuned to questions of a slowdown, or dangerous escalation in prices, it seems that the housing market has weathered its recovery with stability for the time being.
That being said, it remains to determine how the recovery will manifest through the next twelve months. Assuming the housing market continues to grow until the close of 2014, there are certain potential trends that could unfold. A recent article published by USA Today lays out a series of predictions for this year’s housing market, with some of them a continuation of prior trends, while others are potentially new developments.
In tandem with what I’d noted in a prior post, the USA Today piece predicts that new home construction will continue with relative strength throughout this year. The story rightfully notes that new home construction has lagged behind other areas of the property sector, but lays out that home starts could strengthen to the point where they become a driving factor in the recovery. The USA Today post goes as far as to predict that new construction may be main driving force of recovery, especially considering price gains may shrink.
As an inverse, it seems that home sales have started to slow and may continue to do so throughout the rest of this year. As the USA Today report notes, they were down for the first time year-over-year last November, which was the first time this had occurred in 29 months. This trend could continue well through this New Year, with elevated interest rates set to encourage a pattern of more cautious buying. All in all, homebuying levels will likely normalize, with purchase rates likely to mimic those recorded throughout 2007. This is far from a depressed rate, but a far cry from the inflated rate we saw after the close of the recession.
While certain trends will carry over from 2013, some new developments could well unfold in the New Year as well. Rising mortgage rates could have unpredictable impacts on purchase rates and the general optimism of new buyers. While the elevation in mortgage rates that came about at the end of 2013 helped diminish the potential for local micro-bubbles, they could rise to the point where otherwise responsible purchasers are eked out of the buyer’s market.
The USA Today reports this could hinge sharply on the Federal Reserve closing its bond-buying program. This will occur in tandem with an accompanying rise in mortgage rates, which will make opening longer-term mortgages especially unappealing. Federally-imposed lending standards will also become stricter, resulting in previously acceptable mortgages becoming legally unfeasible.
While complex, this development isn’t entirely bleak. Homeowners could favor lower-priced housing, and plan more conservatively than they might have otherwise. This could decrease purchase rates, but it could also go the distance towards discourage buys that could result in long-term instances of unmanageable equity.