Housing Market Forecast for 2014

mark pennI closed last month’s column with a very brief statement about California Association of REALTORS® (CAR) releasing its annual Housing Market Forecast for 2014. In short, it looks as if statewide housing prices will continue to rise, but at a much more modest rate – 6%  – than this year’s predicted 28%. That’s just one figure in the survey, however, and even though it’s probably the one that homeowners and homebuyers look at with the most interest, there are other numbers and trends that really bear consideration.

While prices will at least hold steady in 2014, we do expect to see an increase in sales across the state. Although also modest, there should be at least 14,000 more sales of single family homes in 2014, meaning that at least 28,000 more buyers and sellers next year will consummate a transaction that they might not have been able to manage completing in 2013. If you were a buyer in the Bay Area this past year, you certainly can attest to the frustrations that went along with most home searches, and that’s assuming you were lucky enough to even get into contract on a sale.

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So, although the 14,000 increase in sales over 2013 only amounts to about a 3.2% improvement, it’s better than the 2.1% loss that we will have experienced at the end of 2013, and really means close to the same number of sales in 2014 as in 2012. Almost any Bay Area REALTOR® will tell you that he or she wishes s/he had more properties to sell – so we are glad to see any improvement in “inventory.”

A much more difficult trend to predict is what will happen to mortgage interest rates in 2014. These numbers are tied to so many variables that depend on unpredictable factors. I therefore really don’t know how they can forecast anything in this area. But they do – and for a 30-year fixed rate mortgage, those predictions include a 1.2% bump in rates, from this year’s average of 4.1% to 5.3% in 2014. In spite of the fact that 5.3% is not bad compared to rates of some years ago, the increase could be a serious factor tied to affordability for some buyers. In fact, assuming those numbers hold true and a sample transaction is based on typical down payments, etc., a homeowner’s buying power (the price that the individual could pay for a property based on a maximum mortgage payment) will slip from a sample of $750,000 to $635,000, or about 15%.

As a by-product of that potential, we may see a further advance in the number of adjustable-rate mortgages, which have been experiencing a recent resurgence. The forecast for those mortgage rates is much smaller – from an average of 2.7% in 2013 to 3.1% in 2014. Remember that these are averages for an entire year and those rates can swing considerably month over month and even day to day!

In other interesting predictions, here are a few more from CAR’s Housing Market Forecast:

California unemployment will decrease from an average of 9% in 2013 to 8.3% in 2014.

Population growth in the state will remain at .09% (9/10ths of 1%).

Real disposable income will rise from .09% to 3%, double what it was
in 2008.

Judging from that last one, it’s awfully tempting to lengthen the holiday shopping list, but I think I will hold off for now.

A Bay Area native, Mark Penn has been a REALTOR® with Coldwell Banker since 2004. He is also active in animal welfare, and is a former educator, facilitator, and air traffic controller. Mark can be reached at mark@MyHomeInSonoma.com.