A collection of recent headlines:
- Year in Review: Building permits, housing sales rise in 2013
- New home sales in Alabama improve 6% in October; YTD sales up 8%
- Alabama Residential Report: November sales up 4%; YTD sales up 10%
- Alabama December Sales up 17% year-over-year; 10% YTD
- Home Prices Mark Biggest Gains Since 2006
- Banks warn new rules will make it harder to issue mortgages
- USDA Eligibility Zones set to contract
- Interest rates continue gradual rise toward 5% and higher
- Boomerang Buyers Could Boost Housing Market Further
So what does it all mean? There is no denying that 2013 was a much better year for the Real Estate Market throughout most parts of Alabama. That said, everyone should understand that these headlines and signs of marked market improvement do not apply uniformly to all markets. Everybody’s situation is different!
Even so, the improvements have been more than just encouraging. The question being asked by folks now is what can we expect in 2014. The headlines above reflect a bit of a mixture of good news and maybe bad news.
First the good news. Real estate sales are definitely up and that improvement is building on itself. We are now experiencing sustained market appreciation… However, it will take some more time for the losses of the past six-to-seven years to be made up.
So if you were waiting on the bottom… you missed it. The bottom for most of the Birmingham Metro area markets occurred in October 2012… Prices are increasing at a rate above the inflation rate. Good news for homeowners… bad news for those wanting to buy their first home at rock bottom prices. Even so, rising rental rates and increasing mortgage interest rates are making that decision to buy a home almost a no-brainer for those that don’t own a home. However, first-time homebuyers need real guidance to understand how to make all this work to their advantage. As big an advocate as I am for home ownership, home ownership isn’t for everyone in every situation.
Zero down options are shrinking. One of the most formidable of these options, the USDA Rural Housing Program is set to expire for many areas: most notably: Pinson, Moody, Pell City, Chelsea. The recent “Final” Expiration Date for these zones was set to expire January 16th. We were given yet another reprieve at the last minute until the government passes a Continuing Resolution or Budget before implementing the changes mandated by the 2010 Census. How much longer those changes can be delayed is uncertain. But it is certain that when they go into effect they will have dramatic impact on sales in these areas.
A year ago interest rates were at 3.25%, a historic low. Today they are 4.375%, still very low… but rising. By year’s end they will probably be above 5%. Many forecast are calling for 5.5%, which I believe is a worst-case scenario.
Note these rates are for the best loan applicants. Most will be paying from .5 to 1% higher than the low rates seen in advertisements. By the way it is important to understand that in the world of mortgage interest rates, rising rates are at the moment the result of good economic news… and falling rates the result of bad news.
New mortgage rules that went into effect January 1st are expected to make it more difficult for Mortgage Lenders to make loans… at least that is what the mortgage industry is saying. And I suspect that for a while this will be true as they adjust their practices in response to needed industry change. My sense is that they will work through the mortgage quality issues and find a way to continue business by raising mortgage rates rather than front-end costs and passing unnecessary risks on to the secondary mortgage market. That said, those with poor credit and/or burdensome debt will find it continuingly difficult to get a mortgage and when they do they will be paying significantly higher rates.
While on the decline, foreclosures are still with us and will probably continue at above historic norms for the next several years. While the new mortgage rules are intended to impede the creation of mortgage time bombs, it’s really more complicated than that.
Simple answers are flawed… half-truths. Every market is unique and within the metro Birmingham Area we have literally thousands of micro markets each with its own set of dynamics. Whether buying or selling you should get real guidance from a proven real estate professional. That said, from my view 2014 is already shaping up to be a banner year for the real estate market and I hope for you.
May the market be with you.
