Looks like 2014 will be a transition year for the national real estate/housing market. The NAR released its first report of the year showing that existing home sales have fallen to the lowest level in over a year – a dip of 5.1%.
Home prices are up – due to a shortage of inventory. Credit is tight. First time homebuyers sat on the sidelines making up only 26% of the home purchases (down from 30% in January 2013).
NAR’s Chief Economist Lawrence Yun blamed the weather: “Disruptive and prolonged winter weather patterns across the country are impacting a wide range of economic activity, and housing is no exception. Some housing activity will be delayed until spring. At the same time, we can’t ignore the ongoing headwinds of tight credit, limited inventory, higher prices and higher mortgage interest rates. These issues will hinder home sales activity until the positive factors of job growth and new supply from higher housing starts begin to make an impact.”
The fact of the matter is that both existing home sales and pending home sales have been trending downward, despite Groundhog Phil’s February 2nd prediction of more cold weather .
Buyers on the fence waiting for prices to come down will be disappointed and that wait could cost them dearly as interest rates inch up. According to Keller Williams Realty’s research (the number one real estate company in the U.S. based out of Austin, Texas), a 1% increase in mortgage rates is ten times more likely to happen than a ten percent drop in home prices. A $250,000 home purchase at 4.23% interest rate the total interest paid on the loan will be $191,693. With an interest rate of 5.23%, the total interest paid $245,869. This more than offsets a possible 10% reduction in price – which is unlikely to happen given the inventory levels and current economic conditions.
Some experts claim this decline or "pause" in the market is a sign of a healthy trend. Others are not so sure because of other indicators like stubbornly high unemployment rates and first time homebuyer data. "Housing is not about to collapse into another bust, but it is due for a pause after a strong rebound since the first half of 2012,” wrote David Blitzer, chairman of the index committee at S&P Dow Jones Indices.
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