National Association of Realtors® 2014 Housing Prediction

 The annual National Association of Realtors® announced the annual housing prediction at its conference this November in San Francisco. Housing price is predicted to increase by 6 percent in 2014, banks are criticized for being too restrictive on mortgages, there is still too low of a housing inventory, and with rising mortgage rates refinancings will drop significantly.

In a presentation about the housing market on a nation-wide basis, on November 8, Lawrence Yun, chief economist of the National Association of Realtors® said:

• Existing-home sales are expected to retain the healthy gains seen this year, while prices will stay on an uptrend in 2014,
• Existing-home sales have shown a 20 percent cumulative increase over the past two years, while prices have gained 18 percent, but incomes have risen only 2 to 4 percent in the same timeframe.
• Yun said. “While the median-income family in many areas will still be well positioned to buy a home in 2014, income is barely budging given growth in consumer prices.” 
• Yun said the other headwinds moving forward include limited inventory conditions in many areas and mortgage lending standards that are still unnecessarily stringent. “Although home sales have recovered over the past two years, mortgage purchase applications have been flat for the past four years, even with rising sales,” he said.
• With higher mortgage interest rates, he expects refinancings to collapse in 2014 to the lowest level in at least 15 years, and hopes purchase applications will begin to rise. “This is an incentive for banks to increase mortgage origination, especially considering the low default rates in recent years. But even with cheap mortgages for the past four years, all-cash buyers stayed high, accounting for over 30 percent of sales,” Yun noted. 
• Yun said banks are holding onto funds for potential Department of Justice lawsuits, rather than making them available to mortgage borrowers.
• Existing-home sales this year are forecast to rise 10 percent to nearly 5.13 million, but should hold fairly even at about 5.12 million in 2014. 
• The national median existing-home price for all of 2013 will be up just over 11 percent, to about $197,000; then increase nearly 6 percent next year.
• Yun expects the inventory shortages to be felt again next spring. “Housing starts are the only way to alleviate inventory shortages,” he said. “Housing starts need to rise 50 percent to meet underlying demand.”
•  Mortgage interest rates are expected to trend upward and reach 5.4 by the end of next year.
• “If not for the housing recovery, we could be on the verge of a recession,” Yun noted. “The rent component of inflation is rising, so the only way to tame price growth is new home inventory.” 
  
•  John Krainer, senior economist at the Federal Reserve Bank of San Francisco, who said near-term economic momentum is weakening, but improvement in growth is expected going forward. “Inflation has been subdued, and is expected to remain below the Fed’s 2 percent target over the next few years,” he said. “Despite improvement in the labor market, the unemployment rate remains elevated but will be falling slowly.” 
• Krainer notes improved household net worth, aided by rising home values, is supporting consumption spending, but home sales and inventories are not growing as expected. “New-home sales are significantly underperforming, and have been bouncing around World War II lows,” he said.
• “There is a big disconnect between rising home prices and inventory slowing down,” Krainer said. Normally, higher levels of new construction would be expected in a rising sales environment.
• Krainer notes there is a relationship between the share of underwater mortgages and the number of homes for sale. “In markets where we saw a high percentage of underwater home owners, we also saw lower inventory levels.”

See full article at Realtor.org