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December 21, 2013 / patrickbelhon

All Signs Point to a Significant Slow Down in the 2014 Real Estate Market

Significant Slow Down in the 2014 Real Estate MarketBuyers, sellers, agents and home builders will all look back on 2013 as a very good year for real estate. Housing starts, existing home sales and average selling prices were all up in 2013. Many homeowners whose houses were under water at the beginning of the year are now out of the red and into the black.

While nobody is complaining about the continuation of the housing recovery from the depths of the recession some five years ago, the second half of 2013 was not nearly as good as the first half. After some three straight years of increasing sales, the last three months of 2013 have been marked by decreases and slowing momentum. Following are some reasons why the slowdown is expected to continue in 2014.

Home prices are leveling off

According to the REAL Trends Housing Market Report for November of 2013, the annual number of new and existing home sales was 5.665 million units, a slight drop of 0.1 percent over the annual rate of home sales in November 2012 (5.669 million units). Many real estate experts are forecasting total unit sales in 2014 to decline significantly o somewhere around 5.1 to 5.2 million new and existing homes. Prices on 2013 home sales were up about 10 percent, but for 2014, they are expected to only rise by between 3 and 6 percent.

Increases in 2014 home sales prices are likely to be constrained by market and economic conditions. In the last two years, prices have gone up by 20 percent, but worker’s wages have only gone up by 3 percent. Investors helped drive up real estate prices in the past few years by buying foreclosures and distressed properties and then renting them to people who could no or did not want to own a home. Looking forward, it can be concluded that home prices are near a tipping point. Supply and demand are getting back to normal levels which means that home prices should only rise with inflation and not because they were depressed after the housing bubble burst.

Short Sales in 2014 will be less advantageousShort Sales in 2014 will be less advantageous

In an effort to help the millions of homeowners who owed more on their mortgages than the current value of their homes, the government passed a law called the Mortgage Debt Forgiveness Relief Act. The Act provided tax relief to homeowners who made a deal with the bank that allowed them to sell their house for less than the remaining amount on their mortgages. Before the Act was passed into law, any amount of loan forgiveness would be like income and subject to ordinary income tax.

In 2014, the Mortgage Debt Forgiveness Relief Act will expire, and any short sale could result in a big tax liability. It is likely that people who were considering a short sale will refrain from selling their homes and that will have the effect of reducing available housing inventory.

New Construction

Housing starts, which represent the number of new homes that contractors intend to build, are only expected to go up from about 1 million to 1.1 million in 2014. In normal markets that figure should be closer to 1.5 million. You could look at housing starts in two ways. It indicates that the supply of housing units will not be very robust and it also indicates that builders are cautious about the demand for new homes.

Mortgage rates are going up

Low mortgage rates are always good for the housing market because it means that more people can afford to buy a home. A major reason why Ben Bernanke and the Federal Reserve have been stimulating the economy for the last five years is to keep mortgage artificially low and help the housing market recover. A strong housing market is good for the economy.

Well, just before Christmas, the revised GDP for the third quarter of 2013 was 4.1 percent and unemployment was down to just a tick over 7 percent. That excellent economic news encouraged the FED to begin to taper (cut the amount of money the FED was injecting into the economy). That will force interest rates up on treasury bills, lower the price of bonds and increase the rates on mortgages.

People who want to buy a house in 2014 will still be able to buy one and people who want to sell a home will still be able to find a buyer. Like always, if a house is priced correctly, it will change hands in a short amount of time. Whether you get your asking price as a seller, or a bargain as a buyer, depends on timing and your skills as a negotiator.

Article Copyright ©2013/2014 – All Rights Reserved Patrick Belhon

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