The Good, the Bad, and a Sense of Normalcy in the New Year

While maintaining that “local markets vary widely,”Realtor.com released its predictions for the national housing market in the new year. The forecast includes a few bright spots, a couple of looming clouds, and some normalcy expected to precipitate the market in the coming year.

Among the bright spots are the rising tide of positive equity and abating foreclosures.

While 2.5 million homeowners rose from underwater during the second half of this year, 7.1 million homeowners remain below water. Furthermore, 10 million homeowners have less than 20 percent equity in their homes, according to Realtor.com.

However, “[t]he good news is that prices are expected to continue rising in 2014, which will lift more homeowners into positive territory,” according to Realtor.com.

A second positive trend that will continue into the new year is declining foreclosures.

In the third quarter of this year, foreclosure starts reached their lowest level since the second quarter of 2006.

September also marked the 36th straight month of declining foreclosure activity on an annual basis, according to Realtor.com; and this movement is expected to continue in 2014.

The new year will bring a couple clouds to the market, including rising mortgage rates and declining affordability.

Mortgage rates have already risen 100 basis points this year, and when the Federal Reserve begins tapering its stimulus spending, rates are likely to spike a little higher.

Rising prices may help bring some homeowners out of a negative equity position, but they also pose a threat to affordability. The rate of price appreciation this year outpaced income growth.

Rising mortgage rates also lead to lower affordability.

Another change to the market in the new year will likely be a rise in inventory, bringing it more in line with normal levels.

“The beginning of 2013 could be characterized as the ‘year of low inventory,’” according to Realtor.com. As the year ends, inventory matches levels seen a year ago, but median age of inventory is 11 percent lower.

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