The Real Estate Trends That Defined 2014
The year 2014 saw a steady build-up of housing momentum that is expected to carry the market into 2015 gains, according to a realtor.com® report released today.
The 2014 Housing Review points to significant improvements in the U.S. economy overall and low mortgage rates as fueling the housing market. However, there are also factors that continue to hold back a recovery, including tight credit restrictions and a limited supply of homes for sale.
“The strong outlook for 2015 is based in part on the improvements and momentum experienced by the economy and housing in the second half of 2014,” said Jonathan Smoke, realtor.com®’s chief economist. “With several key factors turning strongly positive, 2014 was a turning point and sets the stage for a stronger recovery in 2015.”
Here are the top 10 trends of the past year, with five indications of growth and five limiting factors.
Indicators of a stronger housing recovery
1. Improving economic fundamentals: After an especially harsh winter, the economy picked up steam this spring and produced a banner year for new jobs. The GDP this year was higher and is still trending higher, resulting in stronger consumer confidence.
2. Historically low mortgage rates continued: Mortgage rates declined despite the end this year of quantitative easing, a monetary policy intended to stimulate the economy. Global weakness, along with actions by the European Central Bank and central banks in Asia, kept our Federal Reserve from raising the Federal Fund Rate, which kept mortgage rates low.
3. Return to normal price appreciation: After two years of abnormally high levels of home price appreciation in 2012 and 2013, price increases moderated throughout 2014. We are now experiencing increases in home prices consistent with long-term historical performance.
4. Decline of distressed sales: Foreclosures and short sales declined throughout the year, and while total home sales decreased year over year, normal (non-distressed) home sales increased over 2013. Foreclosure inventories also fell substantially and are forecasted to be down 30% year over year at the close of 2014.
5. End of the era of major investors active in purchases: Related to the drop in distressed sales opportunities, and against a backdrop of higher home prices, portfolios of single-family homes for rent may have reached their peak this year. Large-scale investor purchase activity in the single-family market sector continued to decline, leaving more room for traditional first-time buyers.
However, we still have a ways to go back to normality.
“Despite the positives, several factors were far from normal this year,” Smoke said. “The limiting factors held back demand and even supply in 2014, but economic gains and late 2014 government housing policy actions brighten the potential for even more positive change in 2015.”
Factors holding back recovery
1. Tight credit standards: Despite historically low rates, many households were prevented from capitalizing on mortgage access because of overlays lenders added to qualification standards in order to limit their risk. As a result, mortgage credit availability did not improve in 2014.
2. Limited inventory: While absolute inventories increased as the year progressed, supply did not outpace demand. Monthly supply of new homes and existing homes remained beneath normal levels, and the age of inventory was down year over year.
3. Depressed levels of first-time buyers: The share of first-time buyers fell to the lowest level in more than 20 years, according to the National Association of REALTORS®. “But the first-time buyer share is showing signs of modest improvement by the year-end,” said Lawrence Yun, NAR Chief Economist. Federal policy actions, such as revised regulations for lenders and new low down-payment programs introduced in December are anticipated to have a positive impact in 2015.
4. Record levels of renters and ever-increasing rent prices: Continued declines in homeownership rates resulted in record numbers of renting households. Rent increases became an inflationary concern this year, and looking ahead, the pace of these increases is not slowing down.
5. Lack of recovery in homebuilding and low share of new home sales: Single-family starts barely increased in 2014 over 2013. New home sales remain far from normal share levels – typically near 16%, they are now around 9%. New home prices increased substantially again this year, revealing that higher priced product is limiting the demand.
What Happened to Rates Last Week:
Mortgage backed securities (MBS) lost -24 basis points (BPS) from last Friday’s close which caused 30 year fixed mortgage rates to move slightly higher from the prior week. It was our second consecutive week of losses. We had our best pricing on Monday and our worst pricing on Wednesday.
It was a holiday-shortened week that once again saw very strong U.S. economic data which pressured MBS pricing. The following received the most market attention:
GDP: The T-Rex of economic reports was much stronger than expected. The final revision to the 3rd QTR GDP came in at 5.0%. The market was expecting a reading in the 4.1% to 4.3% range. This number was originally released at 3.5% and then revised once to 3.9% before this final revision to 5.0%. This will change everyone’s guestimate upward for the annual GDP rate for 2014 and is very negative for bonds.
Consumer Sentiment: The final number for December was very strong with a reading of 93.6 vs est of 93.5 and was one of the best readings in over 7 years. This is generally negative for MBS.
We also saw small increases in Personal Spending and Personal Income, while PCE showed no threat of inflation in the short term. Both New Home Sales and Existing Home Sales were lighter than expected and Durable Goods Disappointed but the market largely ignored those reports as there are some large seasonal adjustments that may have skewed the data to the downside.
What to Watch Out For This Week:
|Date||Time (ET)||Economic Release||Actual||Market Expects||Prior|
|30-Dec||9:00||Case-Shiller 20-city Index||4.40%||4.90%|
|31-Dec||7:00||MBA Mortgage Index||NA||0.90%|
|31-Dec||10:00||Pending Home Sales||0.80%||-1.10%|
|31-Dec||12:00||Natural Gas Inventories||NA||-49 bcf|
|Jan 02||10:00||ISM Index||57.5||58.7|
It is virtually impossible for you to keep track of what is going on with the economy and other events that can impact the housing and mortgage markets. Just leave it to me, I monitor the live trading of Mortgage Backed Securities which are the only thing government and conventional mortgage rates are based upon.The above are the major economic reports that will hit the market this week. They each have the ability to affect the pricing of Mortgage Backed Securities and therefore, interest rates for Government and Conventional mortgages. I will be watching these reports closely for you and let you know if there are any big surprises.