A number of positive indicators have shown that housing recovery is moving along steadily, though the pace at which the recovery takes place is set to slow down.
Home sales were strong in the first half of 2013, but the second half of the year was much weaker than the first. Moreover, home prices only reflect where the state of the housing market has been and do not necessarily reflect where we’re headed. It takes around six months for new information on home sales to work its way into the official data.
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This is why some economists have predicted that 2014 will mark a noteworthy slowdown in home value appreciation. With less buyers looking to get a home, there will be less demand for new houses. And with shrinking demand, a slowdown in home value appreciation is what would necessarily follow.
Home Values In 2014
Another factor that will have a direct impact on home values is interest rates. The Fed has kept interest rates low for years through its bond buying program, but it has already begun to scale back its efforts on that front. If rates on 30-year mortgages do rise, that could significantly hamper the number of people willing to get a home or refinance. This is exactly what happened last summer when rates were on the rise and many Americans held of purchasing a home or refinancing an existing mortgage.
So, higher rates would likely lead to lower demand which would eventually mean lower home prices. This could be great news depending on what you’re trying to do. It’s not good news if you want to sell your house. Homes are often the biggest financial asset most Americans have and falling home prices are akin to becoming poorer. On the other hand, it may be good news if you’re an investor or a prospective homeowner looking for a good deal. The biggest winners in all of this would likely be all cash buyers who can get the low price they’re after without paying a dime in interest.
Housing Recovery Strength Depends on Location
Even as the housing market continues to recover, some locations are expected to bounce back faster than others over the next five years. According to a new study released by the Demand Institute, by 2018 median home prices will reach their same peeks that were seen in 2006. But the recovery is not expected to be dispersed evenly.
In the 50 largest metropolitan areas in the country, the top 5 locations will see home values appreciate by an average of 32%. This stands in contrast to the bottom 5 which will only see prices appreciate by 11%. But this is only half of the story.
What the data reveals is a striking wealth gap that’s being created in the housing market. For example, the top 10% of cities now control 52% of all of the housing wealth. Many of these cities are located on either the East Coast or the West Coast. Some cities, by contrast, still remain underwater nearly 5 years after the recession officially ended.
