Last year we experienced an extremely low inventory for listings in our area. However, the properties that were up for sale had such high demand that the values of these few listings skyrocketed. Now, as the market’s busiest season approaches, those increasing values are spurring more listings as homeowners regain equity lost in the crash. The supply increase is poised to damp price gains while high mortgage rates cut into demand.
According to Jed Kolko of SF-Based Trulia, “prices won’t be rising as much as they were rising last spring. It will be a less frantic market with more inventory and fewer investors.”
Inventory rose most in some of the tightest areas, from Arizona and California and Georgia to Florida, where leaps in prices erased negative equity and encourage homeowners to lock in profits. (Realtor.com)
Paul Diggle of Capital Economics Ltd. has stated that prices nationwide will climb 4 percent this year compared to 2013′s expected 11 percent gain. Increasing mortgage rates also will weigh on prices because the higher costs will push some buyers out of the market, while forcing others to look for cheaper deals.
Capital Economics Ltd. projects 30-year fixed mortgage rates of 5 percent by the end of the year. (Compare that to 4.31%, which is this week’s national average.) Rates will climb as the Federal Reserve scales back bond purchases that have bolstered the housing recovering by holding borrowing costs down.
We saw an uncharacteristic increase in listings at the beginning of the year, due to the fact that homeowners are getting a jump on the spring selling season and listing their properties earlier than usual. According to an agent from Redfin, Paul Reid, sellers are “nervous about what the spring is going to bring. They don’t know if everybody will list this spring then you’ll have a big counterbalance toward too much inventory, or if there’ll be a crunch again.
First time buyers accounted for 27 percent of completed home purchases in December, down from 30 percent a year earlier. This may be due to the fact that adjustable-rate mortgages may not be an option because of stricter lending standards adopted after the housing crash.
An increase in supply would indicate the housing market is moving toward more normal conditions as it rebounds from the five-year slump that started to turn around in 2012.
Mark Zandi, chief economist for Moody’s Analytics Inc., states “inventories had been very, very low and still are despite this turnaround. It’s part of the process toward normalization, although the weakening in demand needs to be watched very carefully if demand does not pick up in the spring, that’s going to call into question the strength of any recovery.”
Buyers of existing homes will face less competition from investors, who have caused shortages in many areas. Bulk purchases will start to slow as the foreclosure crisis fades and bargains disappear.