2013 was a year of highs and lows in the housing market, so what should we be looking for in the year ahead? According to the Wall Street Journal, here are 5 “wild cards to watch” in 2014:
Will inventory rise?
Though evidence shows that inventories likely bottomed out in 2013 and many markets are moving in favor of buyers, inventory numbers will remain tight. Contributing factors: foreclosure-related listings have fallen, traditional buyers still aren’t listing homes in high numbers, and new construction will take years to return to normal levels.
Where is the home-construction recovery?
While home prices have begun to recover, they are still too low to justify the land, labor, and materials costs in new construction. Contributing factors: credit is harder to come by for smaller builders, and move-up buyers don’t have enough equity to “trade up” to a new home.
What happens to mortgage credit?
Mortgages may be easier to come by but borrowing costs and fees could rise. Contributing factors: lenders could begin to ease certain “overlays” (additional credit and documentation checks) that have been imposed over the past few years, and mortgage insurance companies are getting more comfortable issuing loans with down payments of just 5%; however, banks may get more cautious as they face new mortgage regulations, and borrowers with hard-to-document incomes (anyone who is self employed or works on commission, bonuses, etc.) could continue to have a difficult time.
What will investors do with their homes?
Investors have played a key role in stabilizing home prices in the past few years as they purchased tens of thousands of homes, particularly in regions that were hit hardest by foreclosures. Now that this rush to invest is dying down, more lenders and investors are extending debt financing to property owners to help boost returns.
When does housing hit a tipping point on affordability?
Though rising prices are giving many homeowners equity in their homes again, price inflation is also making housing less affordable. This will become a bigger problem if cash buyers retreat from the market in 2014 and/or if interest rates rise significantly.
This article can be found in its original form on Wall Street Journal.