This past year demonstrated a steady build-up of housing momentum -fueled by significant improvements in economic fundamentals, low mortgage rates, and compressed inventory - and is expected to carry the market into 2015 gains, according to the 2014 Housing Review issued today by realtor.com®. This review includes the Top 10 Real Estate Trends that defined the 2014 housing market, as well as the Most-Searched Neighborhoods of the year.
"Many of the gains that we recently predicted in the realtor.com® 2015 Housing Forecast are built on housing growth established in 2014. Overall, this year's housing market showed steady advances over 2013 with significant improvement in key housing metrics, despite some remaining challenges," said Jonathan Smoke, chief economist for realtor.com®. "Increases in job creation and gross domestic product (GDP) have had a significant impact on consumer confidence and home buyer demand. Paired with historically low interest rates, these factors kept properties moving quickly with median time on market at approximately 90 days. Unfortunately, the low number of homes for sale and stringent lending standards prevented a normal number of first time home buyers from closing on their first home in 2014."
Realtor.com®'s Top 10 Real Estate Trends of 2014
Indicators demonstrating a stronger housing recovery:
- Improving economic fundamentals: After an especially harsh winter earlier in the year, the economy picked up steam and produced a banner year for new jobs. The GDP this year was higher, and is still trending higher, resulting in stronger consumer confidence.
- Historically low mortgage rates continued: Mortgage rates declined despite the end of quantitative easing this year. Global weakness, along with actions by the European Central Bank and similar central banks in Asia kept our Federal Reserve from raising the Federal Fund Rate, which kept mortgage rates low.
- Deceleration of abnormal home price gains or 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.
- 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 - due to the decline of the distressed sales market. Foreclosure inventories also fell substantially, and are forecasted to be down 30 percent year over year at the close of 2014.
- End of the era of major investors active in purchases: Related to the drop in distressed sales opportunities, and against backdrop of higher home prices, portfolios of single-family homes for rent potentially reached their peak earlier this year. Large-scale investor purchase activity in the single-family market sector continued to decline, enabling more room for traditional first-time buyers.
Factors holding back recovery:
- Tight credit standards and limited mortgage availability: 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 put-back risk. A tight spread between approved and declined FICO Scores shut out nearly half of the potential population this year. As a result, mortgage credit availability did not improve in 2014.
- Tight supply of 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.
- Depressed levels of first-time buyers: The share of first-time buyers fell to the lowest level in over twenty 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.
- 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 are not slowing down.
- 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 percent, now instead around 9 percent. New home prices increased substantially again this year, revealing that higher priced product is limiting the demand.
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