November 12th, 2013
The National Association of Realtors is looking into the future to estimate how the U.S. housing market will fare in coming years. According to its recent report, the trade group expects that in 2014, home prices will continue their steep upward trend but home sales will steady. Typically, rising prices encourage homeowners to put their properties on the market, which boosts sales, but the fast rate at which people are currently purchasing homes is keeping inventory low. This means that as there continues to be a scarcity of listings, fewer people will be able to buy homes in the near future.
According to USA Today, the existing home inventory is almost at a 13-year low. NAR Chief Economist Lawrence Yun points to new construction as the solution to this problem, and he expects a continued housing shortage into next spring.
“Housing starts really need to ramp up going into next year,” Yun said. “Otherwise, home prices will continue to go up. … The only way to contain prices is that we need more inventory.”
Throughout the rest of 2013, sales of existing homes are expected to increase 10 percent to approximately 5.13 million, but they will likely taper off and hold steady around 5.12 million in 2014, the NAR reported. Along with a supply shortage, rising mortgage rates are a main reason the group anticipates home sales will be stable rather than grow next year. By the end of 2014, the organization believes the average interest on a 30-year fixed-rate mortgage will reach 5.4 percent.
Incomes not keeping up with rising prices
One issue the NAR study points out is the unbalanced rate of growth of home prices compared to Americans’ incomes. According to the source, existing-home sales have jumped 20 percent over the past two years and prices have increased 18 percent, but incomes have only grown 2 to 4 percent over the same period of time.
“We’ve come off of record-high housing affordability conditions in the past year, and are now at a five-year low, but conditions are still the fifth best in the past 40 years,” Yun said. “While the median-income family in many areas will still be well-positioned to buy a home in 2014, income is barely budging given growth in consumer prices.”
Since the 2008 recession, the country has lost 8.8 million jobs, and only 7 million have been regained, the NAR reported. Fortunately, economists expect the unemployment rate will drop to about 6.7 percent by the end of next year.