Out and about: Real estate and mortgage lending trends in 2014

After a dynamic and rather positive 2013 for the real estate business, how is 2014 shaping up? 

The general vibe seems quite positive. Although the housing market has not recovered as fast as many would have wished, it is in an advanced stage of revival. The process is tightly linked to growing employment and economic stabilization. There are no big jumps here – but growth is steady.

With changing economic and demographic conditions, the real estate and mortgage businesses will need to keep adapting as well. The Millennials are the ones moving the market these days – and with their lifestyle and financial capabilities, they are changing the rules of the game.

Below are the hottest trends that are likely to influence the real estate market as well as mortgage lending in 2014.

Real estate prices will increase in 2014

 

Over 5 percentThis is the predicted mortgage rate by the end of 2014 according to the real estate market research firm Zillow. The increase of 1% in 2013 is due to the stabilizing economy, and the trend is very likely to continue in 2014.

The Federal Reserve is not keeping the rates artificially low anymore, as it did in 2012 and 2013 in order to support the market.

A 6 percent increase in housing prices. This is the prediction of the National Association of Realtors. Although this is a good sign for recovery of the market, the effect might not be too positive for buyers when combined with rising interest rates. It can push many properties, especially in hot areas such as Seattle, Austin, Salt Lake City and San Jose, beyond the reach of many potential homeowners.

Improving inventory. Recently we have seen a “seller’s market” due to the inventory shortage in some cities. Many people are withholding selling their property until the market returns to normal. However, this is bound to change soon with improved economic prospects and stronger buying power, coupled with rising consumer confidence.

Easier mortgages. It’s true that loan rates are on a growth curve which signifies that refinancing will be less sought after. This is likely to force mortgage lenders to step back a bit on their lending conditions, making it easier for people to get mortgages.

Lenders will also be influenced by stricter federal rules imposing mortgage standards. With the new rules in effect since January 10, if lenders’ loans default, they will have to take a bigger responsibility and face liability. The mortgage lender surety bond requirement for lenders’ licenses will remain to ensure compliance.

 

The number of home owners will decrease in 2014

Decreasing home affordability. In 2013, the Home Affordability Index was at a five-year low. This means that housing prices are growing faster than incomes. This trend will remain in 2014 as well. Increasing interest rates are also influencing affordability negatively.

Fewer home owners. Logically, with decreased home affordability, there will be fewer people able to own a home. Actually, home ownership is expected to drop to a 20-year low, according to Zillow.

There is demographic reasoning as well with young people being the nation’s future home buyers. While youth unemployment rates stay high, this group will not be able to afford investing in property until they themselves reach financial stability.