2014 housing outlook: Home prices head higher
After a surge in home values in most cities in the past year, prices will increase more slowly in 2014.
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Home prices will rise in 2014 but at a slower, more steady pace compared with historical trends.
The housing recovery has pushed up home prices nearly everywhere. In the past year, home prices rose in 225 of the 276 cities tracked by Clear Capital, a provider of real estate data and analysis. (See how home prices are shifting in 276 metro areas.) Prices nationwide increased by 10.9 percent, pushing the median price for existing homes up by $30,000, to $215,000. For people who have waited to sell their home or refinance their mortgage, that's good news. (Bing: How are interest rates looking this week?)
Rising home prices in Seattle enabled Mike and Kristin Litke to refinance their first mortgage last summer and pay off a second mortgage that had an 8.2 percent interest rate. The Litkes, who bought their three-bedroom, 1.5-bath home for $512,500 in 2007 at the peak of Seattle's housing market, had used the second mortgage to avoid paying private mortgage insurance. In 2010, just as home prices in the area hit a trough, they refinanced their first mortgage to a 30-year fixed rate of 4.375 percent but were stuck with the second mortgage because they didn't have enough equity to do a "cash-out" refi.
This time, however, their home appraised for $521,000, allowing them to refinance into one 30-year, fixed-rate mortgage of $416,800 at 4.25 percent. They have reduced their monthly payment by $360, giving them some wiggle room in their budget and providing an infusion of college-savings funds for their kids: Stephen, 3½, and Stella, 10 months.
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.
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Almost half of the cities tracked by Clear Capital experienced double-digit increases in home prices, led by Las Vegas, with a gain of 32 percent. 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 percent below their 2006 peak. The percentage of monthly family income consumed by a mortgage payment (assuming a mortgage rate of 4.1 percent) is just 15.6 percent, on average, compared with 23.5 percent 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 percent to 5 percent in 2014, about the historical average. Kiplinger expects an increase of 4 percent.
"The most notable thing about 2014 will be how un-notable 2014 is," Villacorta says.
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.
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As home prices continue to rise, more owners who had been underwater — meaning that they owed more on their mortgage than their home was worth — will emerge from the sidelines and start selling and buying homes. CoreLogic reports that almost 3.5 million homeowners were lifted out of negative equity between the end of 2012 and mid 2013. Nevada, Florida, Arizona, Michigan and Georgia have the highest shares of underwater homeowners.
A sellers market
In the past year, sales of existing homes and condos rose by 11 percent, to 5.29 million — almost the highest level in four years. The National Association of Realtors expects sales to remain about the same in 2014. Sales nationally have increased across all regions and in all but one price category, signaling a broad-based recovery.
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Although sales of entry-level homes (priced at $100,000 or less) have fallen by almost half in the past year in the West, they're still rising in the Northeast, where the job recovery has lagged behind other regions. Sales of homes priced between $750,000 and $1 million have risen the most.
"A consistent stock market recovery for a prolonged period has opened up the wallets of upper-income homeowners," says Lawrence Yun, chief economist for the National Association of Realtors.
The downtown Jersey City bubble: Regardless of what local brokers or developers might say, downtown Jersey City (paulus hook, liberty north, exchange place) is currently an unsustainable, overheated market. This real estate bubble will shortly slow down and then let out some steam. So if you are looking to move there, my suggestion is rent for now, and buy when condo price increases stall starting in Q4 and then correct downward over 2015 and 2016. There is a glut of new rental developments approved for the area, bringing online over 5000 rental apartments. This will clearly drive down rents with an oversupply, which historically brings down condo prices. Why buy when renting a comparable apartment is dramatically cheaper per month factoring in maintenance, taxes and mortgage? Also, many of these new buildings will be built in places that dramatically impact the views of several high end condos, further driving down prices and comparables. Some of the major condos being affected are 77 Hudson, 88 Morgan and Gullscove. 77 Hudson has three buildings being build directly around it – east, north and south. 88 Morgan has the URL 69 story towers going up directly east, blocking practically all of the direct Manhattan views. And Gullscove has several buildings including a new Marriott going up that will obstruct its south view. Foreigners, Manhattanites, NJ empty-nesters, that bought high end condos recently with wonderful views, will be greatly dismayed when they go to sell the same unit only now with no views. Then eventually the rentals will convert to condos affording better ownership pricing in better, newer buildings.
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from 2006 a home valued at 385k, is now 446k with cumulative rate of inflation(16%). = 61,000
what folks will pay is now 320k.
When in history, these low finance rates. Virginia local rate 4.1%
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So who are these "experts?" They're usually people who work in the Real Estate market and who stand to gain much from higher prices and increased sales, so they create reports based on wishful thinking. In my opinion, they all ought to be in jail.
House prices rose an average10.9 percent (or $30,000) to $215,000
Something wrong with the match here.