This is the fifth installment of HSH.com’s Think Tank series which features in-depth questions and answers from the nation’s top real estate professors and professionals.
The holiday season is fully upon us and both homebuyers and homeowners are preparing for the new year. This year was a great time to be a buyer or a homeowner— mortgage rates remained historically low and homes were once again an appreciating asset.
But will this continue into 2014? What’s in store for homebuyers and owners? Can buyers still lock in a low rate? Will owners build equity as fast in 2014?
We asked Dr. Robert Eyler, Professor and Chair of Economics at Sonoma State University, and Dr. Thomas Thibodeau, Academic Director at the University of Colorado Real Estate Center, to weigh in on the state of the mortgage and real estate markets in 2014.
A: I expect mortgage rates will rise, reflecting the 10-year Treasury security market, which drives the 30-year fixed rate. (Adjustable rates are also driven by that.) Two other factors that will pressure rates up: continued tightness on the supply side of lending and increasing demand due to growth of the economy.
A: I think mortgage rates will remain relatively flat for 2014. The overall economy and the Fed have the most influence on mortgage rates and, while the economy continues to recover from the Great Recession, the pace of recovery is very slow. In particular, the economy still has yet to recover the number of jobs lost during the financial crisis. While the Fed is expected to reduce its stimulus program, I think most of this expectation is already capitalized in current mortgage rates.
A: Housing prices will likely rise in between 3 percent to 5 percent nationwide. Two major phenomena that are depressing growth right now are growth of new construction and slower demand. Demand should continue to rise as our economy grows. A shrinking inventory of existing homes coming onto the market is helping to support increased housing prices. Interestingly, many real estate professionals suggest that increased demand may come from higher interest rates, which may drive more inventory onto the market simply to fulfill new demand. Prices in real terms are closing in again on the peaks we saw in the last couple decades, which means we are likely to see some adjustments and slower growth, but not a downturn, in 2014.
A: The recent 12.5 percent annual increase in U.S. home prices is not sustainable. Much of this increase reflects house prices recovering from their dramatic decline following the financial crisis. Over the long run, and in most housing markets, house prices increase at the rate of inflation. The rate of inflation was less than 1 percent over this period, placing the inflation-adjusted rate of house-price increase at over 11 percent. This cannot continue indefinitely. It’s more likely that house prices will continue their recovery in 2014, albeit at substantially lower rates of increase something on the order of 3 percent to 5 percent nationally.
More help from HSH.com
Should Fannie, Freddie do principal reductions?Dr. Sherwood Clements and Dr. Menna Bizuneh offer their insight on whether Fannie Mae and Freddie Mac should have done principal reductions during the height of the real estate crisis.
How high will mortgage rates need to rise to curtail home buying?Dr. Anthony B. Sanders, distinguished professor of real estate finance at George Mason University, discusses what economic factors will have to take place before consumers see a serious increase in interest rates.
Tax incentives and issues for homeownersEric Zinn of University of Colorado Denver Business School and Bonnie Villarreal of Utah State University's Huntsman School of Business discuss homeowner tax advantages and the effect of circumstantial changes on taxes that homeowners pay.