A belated Happy New Year to everyone!
About this time every year I like to go out on a limb and throw my real estate predictions into the ring.
Here’s what I think will happen in 2014. Maybe someone will check back in December to see how right (or wrong) I was. These predictions are tied to each other so you have to read the whole thing. So no cheating, there will be a pop quiz!
Mortgage interest rates, currently around 4.625 % (conforming 30-year rates, 0 points), will rise to, and hold steady around the 5.5% mark. There may be a few brief spikes above 5.5% but rates will settle back down to the mid 5s. Why? Because I believe the economy in general, including the job market, will continue to slowly improve. As the old saying goes, “good news for the economy means bad news for interest rates”. Plus, the Feds plans to continue backing off purchasing MBS (Mortgage Backed Securities) will have a negative impact on (all) interest rates. The Feds began buying MBS at the height of the market crash to stabilize the market, which worked well, but contributed to artificially lower rates. Don’t worry, its not the end of the world, as 5.5% is still an incredible interest rate. I’ve seen much higher rates!
Wild home value appreciation slows 2014. Mark Fleming, chief economist at CoreLogic, says he sees the rate of home value appreciation slowing throughout 2014. I agree. I think there will be variations on this theme in different markets. In-town, where home values have been going through the roof, will see lower rates of appreciation than some suburban markets. Why? Because in-town home values have been out pacing many buyer’s ability to afford and some appraisal values have not supported these higher prices. More in-town sellers have also figured out its a good time to sell and have (or will this year) test the water thereby increasing the available home inventory. First-time home buyers bolstered by an improving job market and relatively low home values will come back into some suburban markets. While the inventory in the burbs has been low too, more sellers there will also jump back in. Plus, the price point in many suburban markets is relatively affordable because home values fell so low. Pent up demand will help keep prices moving upwards at a better pace there.
Borrowing money gets trickier. Lenders are changing the rules…again. Yep, its going to be harder for many buyers to qualify in 2014, especially for some buyers seeking Jumbo Loans, that is, loans above $417,000 Conventional Loan limits. Tighter guidelines in the Jumbo Loan market will make their mark in-town, slowing appreciation rates a bit here. Buyers will still be able buy big expensive houses, just not as many buyers. Qualifying guidelines for the conforming market (below $417,000) and FHA loans are a little friendlier than the rules for the big boys. We may also see some loosening of qualifying guidelines for conventional and FHA loans. As rates creep higher some buyers may decide not to get mortgages. Lenders don’t like this and will find new and creative ways to make borrowing money attractive. Happens every time. Lenders won’t be making loans to anyone that can fog a mirror anymore, but they do like lending money.
The return of the missing first-time-buyer will be another big real estate story this year. More buying confidence with relatively low home prices will move many of these now-renters back into the market. The fear of rising rates will help push many on-the-fence buyers back into the market. Condos will get a strong second look from a few of these returning first-time-buyers too.
Rental prices in many suburban areas will fall slightly in the third and fourth quarter of 2014. If you want top dollar for your rental house, rent it now. And to get the best return on your income property investments you’ll need a pro, now more than ever. That’s my only shameless plug in this post, so here’s my number, so call me maybe. In higher end in-town neighborhoods rental prices should hold steady or even rise a bit as home buying in these areas will still be a challenge for some. Quality is the word of the year with rental homes. The new tenant is looking for a great home but at a value. No more “putting lipstick on the pig” renovations on your rental properties. Do a good job fixing it up, charge a fair price, and should be good to go with your rental property.
Condos will make a comeback! Keep the champagne corked for now but I do think there will be some improvement in Atlanta’s condo market. Why? Think location, location, location; then thank that first time home buyer again. Some of these buyers will be looking in more desirable in-town areas, and the cost of this type home may be just out of reach. Call in the condos! There’s also a growing movement towards more walk-able communities and quality of life must-haves that will drive many buyers to give up space for location. Condo financing will continue to be a challenge for a few condo complexes. So if your complex as lost its FHA eligibility don’t even buy the champagne this year as the odds of getting back on that list may be low. But don’t despair, every gray cloud has a silver lining, this revived interest in condos is a trend that will continue.
Moving down is what’s up for 2014. I used to love to cut the grass, but, the grass (or lack thereof) on the other side of the proverbial fence is starting to look pretty darn good. I think you’ll see a trend of trading down for many buyers especially the aging (like fine wine) baby boomers. And some of these folks, maybe a lot of these folks, have “been there done that” with the house thing and condos are starting to look pretty good. Especially if they’re in a great location in a more walk-able urban community. Time to get your old bike out of the basement!
What I’d really like to see would be a reinstatement of the Mortgage Debt Relief Act for the homeowners that are still underwater. The HAFA Program (Home Affordable Foreclosure Alternative) that was scheduled to expire has been reinstated through December 31, 2015. These two programs have been reinstated (retroactively) before and I’m hopeful the tax relief program will be reinstated again…at least for another year. While the overall real estate market is improving, there are still pockets in metro Atalanta, and around the country, where the outlook is not pretty. Short Sales will continue to be a viable option for some homeowners and unfortunately too many homeowners are at risk for foreclosures. Now is not the time to stop government help for these deserving homeowners.
Well there you have it, my real estate predictions for 2014. I’ll try to remember to check back in December to see if I was right. Happy New Year.