A look at 2014: Repeat buyers expected to boost market and renters will pay more
By Elaine Quigley, Realtor, CBR, CRS, GRI, Prudential Prime Properties
This past year has been the year of the investor but things are expected to change in 2014, according to trulia.com. Its chief economist, Jed Kolko, is predicting that repeat homebuyers will soon dominate the market.
“As prices rise, buying homes will become less attractive to investors as well as first-time home buyers, but repeat buyers will be able to offset the higher price of the home they buy with the higher price from the home they sell,” said Kolko on HousingWire.com.
Kolko reported that prices hit bottom and began a sharp rebound in the winter of 2012. Then by spring 2013, inventory and mortgage rates started climbing and price increases slowed. Kolko is hoping to see construction and household formation start to normalize. Many young adults are still living in their parents’ home.
Kolko also predicts that there will be a decline in homeownership or the market may become stagnant in 2014 due to 18-34- year-olds opting to live in rentals. The plus is that many of these young adults will move out of their parents’ homes and into their own rentals.
Trulia tracks five key indicators of which two remain unbalanced. Progress has been seen in existing home sales, delinquency and foreclosure rates, and prices from a bubble condition. The other two indicators, new construction starts, and young adult employment, are still lagging.
While the rental market is growing (35 percent in 2012 compared to 31 percent in 2004), it's not necessarily a rosy picture for renters. According to Harvard Joint Center for Housing Studies, in recent years, rent has become significantly less affordable. The report released this month states that 50 percent of U.S. renters are spending more than 30 percent of their gross income on rent. That statistic (from 2010) is up a record 12 percentage points compared to a decade prior when it was only 38 percent. Nearly 30 percent of renters, according to the study, spent more than half of their salary on rent. That's up from 19 percent 10 years ago.
The study reports that landlords continue to hike rents, making it difficult for renters to save for a down payment on a home. According to trulia.com, rents increased 2.7 percent in the year-period leading up to October 2013. The hikes are causing renters to have to cut other essential needs.
A still soft economy and unemployment rising are making it tough for new construction. Newly constructed homes dipped to a 50-year low. In order to reach normal levels, housing construction would need to increase 50 percent. But new homes aren’t likely to be affordable when, according to Bureau of Labor Statistics, the average seasonally adjusted hourly earnings of all employees on private non-farm payrolls was $24.15 in November compared to $23.67 a year ago.
Lest this starts to depress you, know that there are still many real estate transactions occurring and, during the end of the year and early start of the new year, there are also eager sellers. So, if you’re in the market to buy, in order to escape the escalating rental hikes, now might be the ideal time to start your house hunting.
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