HOUSING OUTLOOK IN 2014

It was a tale of two halves in 2013.  During the first half, unusually low supplies of homes and low rates spurred bidding wars, pushing prices up sharply.
During the second half, the frenzy cooled amid a sudden spike in interest rates.  While more markets are now reporting increases in inventory, the number of homes for sale remains quite low.

Those low inventories will support rising prices.  Below-average levels of household formation must ultimately pick up, boosting construction.  Mortgage rates, while higher, are still historically low. 
Credit standards will stop getting tighter, and might loosen as home prices rise.  Finally, mortgage delinquencies are dropping.  While some states still have elevated foreclosure inventories, the worst of the distressed-housing problem is in the rear-view mirror.

The recovery is a mirage built on the back of the Federal Reserve’s stimulus that has done little more than inflate asset values, including home prices.  Record low interest rates unleashed demand from both borrowers and all-cash investors seeking returns with a decent return.  These investors built large rental-home companies that remain untested.  How can first-time buyers take the baton from investors at a time when prices are up almost 20% in two years and when interest rates are rising? 
Other problems loom: Mortgage rates could jump, choking off housing demand and curbing new construction that remains mired at 50-year lows.  Investors could unload their homes if the rental-home thing doesn’t pan out.  And don’t look for much help from mortgage lenders that face a cocktail of new regulations, which could keep credit standards stiff.

So which view will carry the year?  Here are five wild cards to watch this year:
Will Inventory Rise?
Where Is the Home-Construction Recovery?
What Happens to Mortgage Credit?
What Will Investors do With Their Homes?
When Does Housing Hit a Tipping Point on Affordability?

Stay tuned……