While the housing market has continued to gain its strength, many are still a little weary of what could happen in 2014. There are many factors that could create a small downfall in the housing market, but “rising home prices, low mortgage rates and ‘significant pent-up demand’ will boost the housing market this year.” Says NAHB Chief Economist David Crowe. Crowe also mentions the factors that could very well be holding back home construction itself saying that “The pace of the recovery could be stronger were it not for rising construction costs and inaccurate appraisals that are keeping some home sales from going through.”
A major factor we have seen with the housing market is with mortgage rates. Last summer when mortgage rates rose, the market lost a little steam power. With the fed cutting back its bond-buying program from $85 billion a month to $75 billion a month, there will be a bit of caution knowing that this decision will cause mortgage rates to rise. But with this choice the Fed has made, they believe it will help “the cumulative progress toward maximum employment and improvement in the outlook for labor market conditions,” the Federal Open Market Committee said.
As our economy has slowly grown out of the housing bubble bust a couple years ago, I believe we should not be too optimistic for 2014. The facts have shown that when mortgage rate rise, the housing market loses momentum. Currently, the average rate on a 30-year fixed mortgage is about 4.51%. Even though that rate is considered low, mortgage rates are sure to rise as the Fed gradually reduces its monthly bond purchases. Lawrence Yun, a leading industry economist, “expects rates to rise a pointe by the end of this year to 5.5%. “The higher borrowing costs—coupled with rising home prices—are a concern because they could make homes less affordable for potential home buyers, ultimately hurting sales.” With higher construction costs being one factor, home builders have “lost confidence in all three components of the index: current sales conditions, future sales expectations, and traffic of prospective buyers.”
Over the next couple of months, I would expect the housing market to go down while mortgage rates rise. However, as we see mortgage rates rise, we should look for unemployment to go down. From this I believe that the overall effect of the Fed cutting its bond-buying will help the housing market. It may not be within the next 6 to 8 months, but towards the end of 2014 we should look for more of an upswing.