As prices continue rising in the new year—albeit at a slower pace—investors will begin to ease back from the purchase market, but repeat homebuyers will be there to pick up the slack, according to Trulia’s predictions for the housing market in 2014.
“2013 was the year of the investor, but 2014 will be the year of the repeat homebuyer,” said Jed Kolko, chief economist at Trulia, in his 2014 forecast.
Other changes to the market in the new year include lower affordability, “less frenzied” home-buying, and a shift in the rental market from single-family homes to urban apartments, according to Kolko.
While first-time buyers continue to face major hurdles to purchasing a home, repeat buyers will have an easier time, especially those who have equity in their current homes.
The biggest obstacle for potential homebuyers is saving enough money for a down payment, according to Trulia. This hurdle is was the most commonly cited challenge in a Trulia survey of current renters wishing to own their own home.
Fifty-five percent of survey respondents cited this obstacle, and among young adults (ages 18 to 34) the rate was even higher at 58 percent.
The second most common barrier to homeownership is lack of stable employment—cited among 36 percent of all survey respondents and 43 percent of young adults.
However, repeat buyers may be in a better position to purchase, and “they’re less discouraged by rising prices than either investors or first-time buyers because the home they already own has also risen in value,” according to Kolko.
The pace of home price appreciation will slow in the new year, but rising prices, combined with rising mortgage rates, will take a toll on affordability.
“Nonetheless, buying will remain cheaper than renting,” Kolko said, referencing a Trulia report from September, which determined buying is 35 percent less expensive than renting nationally.
“However, prices and mortgage rates might rise enough to tip the math in favor of renting in a couple of housing markets,” Kolko said.
Continued price increases will likely lead more homeowners to list their homes for sale, leading to an increase in inventory in 2014, according to Trulia. Inventory will also get a small boost from new construction.
At the same time, traditional homebuyers will face less competition from investors, and mortgages “should be easier to get” as the new regulatory environment takes shape removing the uncertainty that has made lenders wary. Together these factors will make the homebuying process “less frenzied” in the new year, according to Kolko.
Lastly, Kolko predicts the rental market will shift from its recent heavy focus on single-family homes back to urban apartments.
During the recession, single-family home rentals increased 32 percent, but several factors will lead to a decline in this trend next year, according to Kolko. Fewer foreclosures, fewer investor purchases, and loosening credit standards will all contribute to the decline.
Also, “[u]rban apartments will be the first stop for many of the young adults who find jobs and move out of their parents’ homes,” according to Kolko.