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Housing Market Good in 2014, Not Great
Friday, November 22, 2013 6:55 AM

Mortgage giant Freddie Mac is expecting a good 2014 for housing. Economists predict a much stronger economic recovery will take hold next year, “led by a resurgent housing sector,” according to Freddie Mac’s November U.S. Economic & Housing Market Outlook report.

Despite rising interesting rates and home values, Freddie Mac economists believe “housing will remain generally affordable in most parts of the country.”

Even if rates were to go to 5 percent next year, housing in most of the country would remain affordable. In most of the country, incomes and home prices are such that rising rates by themselves will not be enough to end the recovery. What we need is some better income growth.

Economic growth is expected to be in the 2.5 percent to 3 percent range, more than half a percentage point better than what is expected for this year. Economic growth will help spur more jobs, and Freddie economists predict that the unemployment rate will fall below 7 percent by mid-2014. Economists consider a minimum healthy growth rate to be 3 percent.

Freddie predicts that in 2014 single-family home sales and housing starts will reach their highest levels since 2007.

Buyers will likely face increasing borrowing costs, with mortgage rates expected to continue to rise in 2014, Freddie predicts. Mortgage rates have climbed about a full percentage point since early May.

The dollar volume of home sales will rise modestly next year, but that growth will stem entirely from increased home prices, according to the National Association of Realtors.

Continuing tight underwriting by lenders, low inventories in many markets, and rising interest rates are holding back growth in sales volume. Home sales of about 5.12 million for 2014, virtually the same level forecast for 2013. But home prices will rise by 6 percent.

What’s needed to spur stronger growth in the housing market is a marked increase in inventory through stepped-up new construction, because only more new homes will ease tight inventories and, in turn, help slow home price gains, helping affordability. Last year only about 900,000 homes were started, a 50-year low and half the amount that’s needed.

The NAR is predicting refinancing to drop next year to their lowest level in 15 years. But lenders won’t turn to purchase mortgages in a big way as long as the regulatory environment is as uncertain and contentious as it is now.

 

(Source: Realtor Magazine, Nov. 20, 2013)