As we begin a new calendar year, I have been thinking about what we can expect in 2014 with respect to both the residential real estate market in the tri-state area as well as the interest rate environment which has such a large effect on the market itself.
I will address the interest rate prospects first which look to me to be a bit like the gasoline prices we have seen for the past few years. With gas prices, we have seen a range from the low $3s (when we hope that they will fall into the $2s) to the high $3s (when we fear that they will rise into the $4s). Every few months we see seasonal adjustments increasing or decreasing the cost of a gallon of gas by .25-.75 but we never (or rarely) see prices break from that trading range.
I see the same thing for interest rates for most if not all of 2014. In good “rate” times (which will correspond with poor economic news or international issues), we may get close again to 4% on the benchmark 30 year fixed, conforming rate loan. While in bad “rate” times (which will correspond with positive economic news or relative calm in the world) we may get close to 5%.
However unless there are significant improvements in the job market and/or inflationary signals, I do not see the bull run of the stock market foreshadowing a huge upward trend in the interest rates. I expect to see rates in the 4s throughout most of 2014 with a possible break-through into the low 5s if the spring/summer home buying season and the fall holiday shopping season are both exceptionally strong.
As for the residential real estate market, I think that it is getting much better each month and that it is possible that 2014 will see us return to a near “normal” market. Outside of Manhattan and parts of Brooklyn, which have been remarkably strong and apparently resistant to the vagrancies of the mortgage lending environment (mostly due to the apparently unlimited supply of foreigners and cash buyers who have an extra $1M-$5M available to spend on apartments that they do not otherwise need to use), I do not see a consistent “bull run” on real estate region-wise.
That said, there will be pockets of “white hot” areas. And well-priced properties will move quickly and attract multiple bids. But, for the most part, the supply of buyers will be somewhat reduced by the new mortgage regulations that went into effect on January 10th (and additional ones that will go into effect a bit later this year). Those who had the audacity to hope that change in the regulatory environment would come along will likely end the year feeling blue. These new requirements mandate additional documentation and impose more stringent debt to income limits on the amount of money that can be lent. The net result of these new mortgage regulations when coupled with the other regulations from the past 4 years, will be a safer lending environment.
But, in line with “no good deed goes unpunished” it will be an environment with less people able to borrow money to purchase a home. I think that the combination of these requirements along with the high jobless/underemployment numbers will prevent the real estate market from becoming overheated in most areas. I think that these brakes being put on to the recovery of the real estate market are clearly an unintended consequence of the insatiable appetite of the federal government to close, lock, block, and bolt the “door after the horses have left the barn.” Nevertheless, it may actually end up resulting in a very positive outcome for real estate. Overall, this year will be another step toward the return to a normalization of the real estate market in 2014. But, we will not quite get there just yet!
So, those are my thoughts on the mortgage rates and the real estate market. And, much like the definition of an economist, I will tell you next year why the predictions I made this year did not happen!
I welcome any and all thoughts and comments. I wish you a very prosperous year and hope that you flourish professionally and personally in 2014.