Barb Jandric, president of Edina Realty, has made the following prognostications. I have added to these thoughts with my comments in blue where appropriate.
This past year has been an exciting year of steady recovery in the Twin Cities metro area. Rising prices meant more homeowners gained enough equity in their homes to make a move. Rates hit record lows, enticing buyers to make a move in a competitive market with a shortage of inventory. This was a significant trend this year, as was continued strong investor demand.
2014 will likely be similar, but a bit more moderate. The below trends are based on what I expect to see in the Minnesota and western Wisconsin real estate market, but many of them will be paralleled on a national level.
- We expect to see continued historically low mortgage rates, so affordability will remain excellent for buyers. Rates are far more likely to climb than fall in 2014 and could affect affordability if the economy finally starts taking off, though I’ve been saying that for several years now and it hasn’t happened (yet).
- Fewer investors will be in the market buying up inventory, which will make room for traditional buyers. As prices rise, profitability for investors will decline somewhat but expect them to still be quite active. Lots of Wall Street money being pumped into housing.
- Former homeowners who lost a home to foreclosure or sold a home short will begin to become eligible to buy again. We expect more of these “boomerang buyers” will begin to wade back into the market this year. Read about FHA Back to Work.
- Limited inventory will contribute to increased new construction, leading to more options for buyers. New construction continues to increase, creating new jobs and new home buying options – good news all around.
- Expect to see continued low inventory of existing homes for sale, especially in the spring. By midyear we will see inventory levels higher than they were at the same time in 2013 – the number of homes for sale is artificially low right now and will start working towards balance in 2014.
- Prices will continue to rise, but not as quickly as 2013; we expect to see appreciation around 4 to 7 percent. I’m betting that Median Sales Price will climb in the 6%-9% range but some areas and price points will be substantially higher or lower than that – the recovery is responding differently in different communities.
Trends in homeownership
- In the third quarter of 2013, 9.6 percent of mortgages remained “underwater,” meaning there is more owed on the mortgage than the property is worth, but that is down from 16.9 percent of mortgages in the third quarter of 2012, according to CoreLogic. We expect this trend to continue and for more homeowners to come above water and gain equity in their homes. This trend is a big part of the expected increase in homes for sale in 2014 and beyond – it also will help drive more consumer mobility, which is great for those seeking new job opportunities.
Our local economy
- Low unemployment is vital to a continued market recovery, and Minnesota’s unemployment rate is among the lowest in the country – a seasonally adjusted 4.6 percent, compared with 7 percent nationally in November, according to the Minnesota Department of Employment and Economic Development. While we have fewer unemployed, wage growth is still lacking and as rates and prices rise further, home affordability will again become an issue. Cheap housing is a temporary condition, and one we may not see again for decades.