2014 Real Estate Market Predictions

2014 Prediction: Market Solid as Recovery Enters Expansion Phase

 

As we near the end of 2013, we may as well put a big red bow on the 2013 real estate market. It was truly a gift that benefited millions of homeowners.

2014

 

Despite signs of slowing in November, the 2013 market remains a robust sellers’ market with moderate, but healthy, year-over-year appreciation.

 

The volume of real estate sold across all Front Range markets in November increased just 1.1% compared to last November, breaking a string of 21 consecutive months of double-digit gains. The supply of inventory remained tight at 3.0 months, indicating a market that continues to favor sellers.

 

In Boulder County, the volume of real estate sold in November actually decreased on a year-over-year basis for the first time in 2013, dropping 1.6% compared to November of 2012. The supply of inventory is a scant 3.3 months.

2014-1
Insider tip and something to watch for in December – an uptick in the pace of closings showing that November’s slowdown was more a function of the calendar than any fundamental shift in the market. Specifically, the late Thanksgiving weekend eliminated four closing days at the end of the month, days that are typically big closing days.

 

Now let’s move onto bigger and bolder predictions. Our official, on the record, predictions for 2014:

 

#1. Sellers’ Market Rolls On

 

The supply of inventory will remain tight, giving sellers the upper hand as buyers compete for a limited supply of move-in ready, market priced listings. Inventory levels will remain below the six month benchmark that divides a sellers’ market from a buyers’ market.

 

Frankly, it remains a mystery where the new listings will be sourced. Builders have sold everything they have, and the number of build-ready lots is in short supply. Foreclosures and distressed properties are on the wane. In fact, Colorado foreclosure filings in October hit their lowest level since the Division of Housing began keeping monthly records in 2007. That leaves the bread and butter move-up buyer who needs to sell in order to move as the primary source of new listings in 2014.

 

#2. More Buyers Drive Up Demand

 

Demand for housing is driven by two primary factors: jobs and interest rates. It looks like job growth in 2014 will be robust and widespread. Colorado is projected to be in the Top 5 states for growth in 2014.

 

On the interest rate front, rates are up about a point in 2013 and will probably edge higher in 2014 as the Fed tapers its bond purchase program. That said, rates are widely predicted to remain below 6% in 2014, a rate that historically has not adversely impacted the demand for housing.

 

Bottom-line, folks who have jobs or are relocating for new jobs buy houses, especially if they’ve been sitting on the sidelines for years waiting for the “all clear” signal. For many, that signal has sounded and they are entering the market, even as investors who pine for the “bargain basement” days of 2011 exit.

 

The end result will be gains of 5% to 10% in the volume of real estate sold in 2014 compared to 2013.

 

#3. Home Values Up 4% to 6%

 

We’re nearly three years into a classic real estate cycle. In 2014, our market should shift from the recovery phase into the stable expansionary phase of what may end up being a five to seven year cycle.

 

While it’s difficult to foresee whether this cycle will last that long, it’s much easier to predict that home prices will rise next year, barring an unforeseen geopolitical or macroeconomic “black swan” event. The conditions of low supply and high demand that drive up prices are firmly in place.

 

However, we are predicting that prices will only increase about half as fast they did in 2013. This is a welcome moderation and should allow the market to fend off any potential bubble bursting or rapid price drops that would end the cycle prematurely. We’ll take 5% appreciation any day!

 

Overall Prediction: 8z’s outlook is a solid real estate market in 2014

 

Of course, as real estate professionals, we can only make predictions; we cannot control what the market will do. We are committed to keeping you informed. We will “tell it like it is” as market events unfold in 2014 so you can make informed real estate decisions.

 

Realizing there are far more important things than real estate markets, I would like to wish you and yours a wonderful Holiday Season. May your home be filled with joy and love.

 

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2 thoughts on “2014 Real Estate Market Predictions

  1. I don’t disagree with most of what you’ve said but you have left out one negative factor, that being home affordability. It seems to me with the rapid run up in prices some demand will be eased as less people can afford to purchase a home. Add on increased fees from FNMA and I would think there will be a slight easing in demand and I guess if job growth is strong that would be enough to offset that at least to some extent.

  2. Thanks for your comment Greg. You make a great point about affordability (a measurement of the relationship between prices, income, and interest rates). I am betting that in 2014, even though affordability may go down slightly as home prices and interest rates continue to rise, income growth will offset those factors, just as you guessed. Whether affordability goes up or down, I think it will remain in a relatively tight range, and the good news is that our market is still extremely affordable by historical standards. Affordability indices from Core Logic and the REALTORs Association both show that affordability in our markets is near 150 (meaning a family earning the median income has 50% more income than required to qualify for a mortgage loan on a median-priced home, assuming a 20 percent down payment). That means we have a little cushion even if affordability drops in 2014.
    Thanks again for your insightful comment.
    Lane

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