New Year Perspective

We've had consecutive two golden years in 2012 and 2013! Did I say that? No one would have guessed that we would go from a non-performing market in Jan 2012 to a nearly explosive June 2013 in a short of just 18 months. And then when many home owners were expecting the frenzy to continue without break, the market dynamics changed, as a matter fact, homes that remained on the market in August, 2013 were simply OVER-PRICED.

As much as I try, it's virtually impossible to predict what the market will do. If I could, my job would have been much easier.

Let's take a quick look back at 2013 and see if you agree.

The following source is from CNBC's Diana Olick.


A LOOK BACK AT 2013

Home Price: Got this one totally right but underestimated the extent of the gains. Investors and move-up buyers pushed the higher-end market.

Mortgage Availability: The new mortgage rules were released, and they will make loans more expensive. Credit standards haven't moved either.

Rents: No sign of easing at all. Renter nation is in full swing as young Americans either can't get the credit or don't have the desire to buy homes. Rents continue to rise and vacancies fall as affordability and homeownership sink.

Foreclosures: Foreclosures and shot sales have continued to ease. Banks have been modifying more loans and writing down principal, and rising home prices have kept the newly delinquent loan numbers low.

Underwater borrowers: Different  surveys show different numbers, but the steep rise in home prices pulled around 2 mission borrowers back into equity land in their homes. Renovations took a big leap in 2013 as a result.




FORWARD to 2014

Home sales will rebound: After a brief lull in the fall of 2013, I predict that sales activity will return to the market with more home buyers. The steep jump in home prices has brought thousands of homeowners above water on their mortgages, enabling them to sell and move. Negative equity has been one of the biggest barriers to home sales since the housing crash. Come spring, there will most likely be more sellers, more homes on the market and therefore more transactions.

Home Price Gains should ease: Prices will still rise, no question. but probably not as steeply as they did in 2013. Annual gains of more than 12 percent were driven in large part by investors on the low end of the market. As foreclosures ebb and fewer distressed sales are in the mix, prices will moderate. Still low inventories, however, will keep them in the positive

Rents will rise: Despite the return of home sales, renter nation should continue throughout 2014, as younger Americans and first time home buyers are still left out of the recovery. Saddled with student debt and unable to come up with the large down payments required from today's mortgage lenders, this cohort will probably continue to fuel both the multifamily apartment market and the single-family rental trade.

Investors will not leave the market: Some have predicted that with rising home prices, the large-scale private-equity investors will leave the newly evolving single-family rental market. Just the opposite. Now that they have built economies of scale and figured out the management, they will most likely settle in for the long haul - perhaps not buying as many new properties, but keeping the bulk of the ones they have. Some smaller investors may opt to sell, but they may sell to the bigger guys rather than to individual-owner occupants.


Mortgage rate will rise: The days of the 3.5% 3-year fixed are over. Rates are already up well over a full percentage point form a year ago. And as the Federal Reserve begins its much anticipated exit from the bond-buying business, I believe rates will inevitably go higher. How much that affects home sales will depend entirely on job and wage growth. Mortgage underwriting will remain tight, but buyers with solid credit should be able to weather slightly higher rates. By historical standards, they are sill relatively low. It is less rate and more availability that will continue to hamper sales.