HOME PRICES HEAD HIGHER BUT SLOWER PACED
MARKET GROWTH IN 2014
GROWTH AHEAD, BUT AT A SLOWER PACE THAN 2013.In 2013, a sense of urgency drove traditional buyers hoping to take advantage of still-affordable home prices and historically low mortgage rates. Buyers found selection limited, and were often forced into bidding wars with investors and other buyers who paid cash. Sellers reaped the rewards in terms of quick sales, often above the asking price. Almost half of the cities tracked by Clear Capital experienced double-digit increases in home prices. Such spikes reflected a continuing “correction to the overcorrection,” says Alex Villacorta, vice-president of research and analytics for Clear Capital. Buyers and investors rushed in to snap up homes with prices that had fallen too far. Homes continue to be affordable, despite recent run-ups—on average, prices are still 31.5% below their 2006 peak. The percentage of monthly family income consumed by a mortgage payment (assuming a mortgage rate of 4.1%) is just 15.6%, on average, compared with 23.5% in mid 2006. “Houses are very cheap,” says David Stiff, principal economist at CoreLogic, a property and mortgage data analytics company.
Market observers agree that home prices will rise in 2014, but at a slower, more steady pace compared with historical trends. Clear Capital forecasts that home prices nationally will rise by 3% to 5% in 2014, about the historical average. Kiplinger expects an increase of 4%. “The most notable thing about 2014 will be how un-notable 2014 is,” says Villacorta.Meanwhile, the Conference Board, a nonprofit association of businesses, found that the percentage of consumers who intend to buy a home in the next six months was the highest since 2000. Adding to the push: Pent-up demand among young people who, hampered by lack of jobs or insufficient income, have been living in their parents’ basements or sharing apartments with roommates. Celia Chen, a housing analyst with Moody’s Analytics, says Moody’s expects the economy to expand enough in the coming year to enable young people to begin moving out. They’ll probably rent first, but low vacancy rates and higher rents will prompt some renters to move on to homeownership.
By Pat Mertz Esswein, From Kiplinger's Personal Finance
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