2014 Prediction – More Home Price increase is on the way driving growth…

It is the time of the year you hear about industry predictions and future growth. As usual NAR Economist has released his prediction on 2014 housing growth. Here are the snippet of his speech.

The dollar volume of home sales will rise modestly next year, but that growth will stem entirely from increased home prices, NAR Chief Economist Lawrence Yun told a packed forum Friday at the REALTORS® Conference & Expo.

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

More broadly, economic growth is likely to remain sluggish. Yun doesn’t see any signs of a return to recession, but neither does he see anything that would boost growth beyond the 1 to 2 percent that’s been the case during the recovery. Economists consider a minimum healthy growth rate to be 3 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, Yun said.

Also needed is more certainty from the federal government. Lenders are keeping underwriting tight in part because of concern over the pending qualified mortgage and qualified residential mortgage rules, which are due to take effect next year.

Although NAR supports most parts of the rules as drafted, community lenders are concerned over the rules’ implementation burdens, which they believe will put them at a competitive disadvantage with large banks.

Meanwhile, lenders remain tied up in litigation and contentious negotiations with Fannie Mae, Freddie Mac, and the FHA over loans that went bad during the market collapse. The conflict is keeping them from lending more and from making more loans available to applicants with less than pristine credit profiles.

Yun thinks lending could break out once there’s more clarity over the rules. He’s hoping lenders will look to purchase loans as their next profit center, since their refinance business—which has been fueling profits over the last few years—is drying up in tandem with the rise in interest rates. The average interest rate is now about 4.5 percent, still low by historical standards, but as they continue their upward movement the universe of home owners who can refinances shrinks.

Yun is predicting refinancings 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.

That’s not real good news but you can’t expect the prices to keep study when the demand is going up and inventory is going down. Also Mortgage rates will likely rise above 5 percent in 2014 and average 5.3 percent by the end of 2015, according to the Mortgage Bankers Association’s forecast. That would mark a big jump over where mortgage rates stand now. The MBA reported this week that the 30-year fixed-rate mortgage averaged 4.33 percent, the lowest average since June.

With all this expected to happen next year, it is just prediction to keep the consumer alert and make decision accordingly. If you are looking to buy home, don’t delay it any further. It’s time left to get the lowest interest rates and decent home price.

About Vijaianand Thirnageswaram

I am a Proud Realtor of Texas, trying to guide and help clients to find their dream home and educate them to buy them for right price. I am also a Candidate for CFP who has more financial knowledge which allows me share and educate clients in any financial decision making process.

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