2013 could be called the year of the recovery; home sales and home values were very stable or slightly up in most areas. As we start the new year, I would like to share with you my top 10 real estate predictions for 2014.
Prediction #1: Significant value recovery: It is my prediction that the low supply and strong demand will push values up another 7-9% in 2014. This prediction is based on the improved offers I am seeing come across my desk. Buyers are making strong offers quickly. This leads me to believe confidence and demand are back which will push values forward.
Prediction #2: Interest rates will rise: I am not an economist and don’t need to know the difference between the last Federal Reserve chairman and this one to know that interest rates will start to go up. It is my belief that interest rates will reach the mid to high 5% range for 30-year fixed mortgages but not crest 6%. The rate increase will be slow and metered.
Prediction #3: Spring will come early: At the time of this writing (January 14, 2014), the market has already surged and buyers are hunting for properties. The low inventory and the rising interest rates create a perfect storm for a spring frenzy. 92% of active homebuyers receive updates from saved internet searches which let them know immediately about new listings or price changes. The information is traveling so quickly that buyers will make really aggressive and quick offers.
Prediction #4: Inventory will improve: As the value rises, more homeowners will be able to sell. Value has been the driving force for the lack of inventory. If the value loosens then so will the back log of “unlisted” homes. Value and perception of a hot market will encourage more sellers to list this year in my estimation.
Prediction #5: More foreclosures will hit the market: Maryland’s liberal politics have created one of the slowest foreclosure processes in all of America. Maryland is #5 in America right now for active rate of default. Our pipeline is back logged with foreclosed properties and this will be hitting the market this year. The trade term for this is “shadow inventory”: The home in your neighborhood with the sticker on the door, the high grass, and that everyone knows has been vacant for 2 years. These homes have already been repossessed; they just haven’t been released by the loss mitigation department.
Prediction #6: Waterfront and luxury will get hot again: As the market loosens and value returns, the “move-up buyer” will make his or her move. Waterfront and luxury has been hit the hardest since the bubble burst 8 years ago. The waterfront and luxury category appeals to a local buyer selling his or her 4-bedroom home in a good neighborhood and wants to move up. If value comes back and the loan terms soften th
en the $1,000,000 plus properties will start selling again.
Prediction #7: Lenders will merge: January 1 marked a new era with lenders facing more changes from the Dodd Frank regulations. Smaller lenders will not be able to weather the changes, regulations and costly errors. Large firms will likely retreat and boutique firms will likely be acquired. The committed middle players will adjust, adapt and grow through these internal regulatory changes.
Prediction #8: Lower down payments: When the market heats up, it is common to see more risk tolerance from the lenders. I predict 10% down loan programs will become common place for borrowers with great credit and necessary reserves. This will really assist in the stimulation of the move-up-buyer and other predictions mentioned.
Prediction #9: Renovation work
will explode: Belief in the value of a home leads to confidence to renovate. It is my prediction that the number of building permits will explode. Higher values mean better appraisals for borrowing against a home. A lot of homeowners have just decided to stay in their home and love their neighborhoods. Over the last 5-7 years I have received a lot of phone calls reporting low appraisals for renovation work which has stalled building plans. That will be reversed in 2014.
Prediction #10: Government will try to repeal mortgage interest deduction: It is my prediction that the federal government will continue to try and repeal the mortgage interest deduction. The topic has been very controversial in the last two years and it will likely come to a head in 2014. In the end, I predict a strong recovery will quiet our leaders and they will decide to leave housing alone. However, this topic will surely be a heated debate in the fourth quarter.
As they would say on Wall Street, I am “bullish” on real estate in 2014. This is going to be a great year filled with optimism and true recovery. It is commonly said that real estate cycles in 7 year trending patterns. A close look would show us that it is time for a new 7 year cycle as the local market has been bouncing around on the bottom since finding rock bottom in 2008. I firmly believe 2014 will be the first year of gradual increases and market improvements.
Thank you for your confidence in me to be your real estate advisor. I love my job!