Economists Outline What to Watch for in the Real Estate Market of 2014

Real Estate Market 2014: Economists Outline What to Look out for

Experts at Freddie Mac and Equifax expect falling unemployment and economic growth to keep the housing and real estate market steady in 2014. This, despite climbing interest rates and anticipated growth in housing prices nationwide.

Unemployment dipped to 6.7 percent nationally in December, and the Federal Reserve is expecting that figure to drop below 6.5 percent later this year. If the Fed is right, it will be the first time since the Great Recession began in 2008 that unemployment will be so low.

What this spells for the real estate market is greater buying power and an upswing in new-home construction, according to Ilyce Glink, managing editor of the Equifax Finance Blog. "The housing market may not return to its pre-recession 'normal' in 2014 or even 2015," Glink said, "but with more Americans employed and able to buy homes, we should see the real estate market, especially new construction housing, continue to pick up steam."

This rise in the number of employed Americans dovetails with expected growth in the U.S. economy. Frank Nothaft, chief economist at Freddie Mac, says the economy should increase by 2.5 percent to 3 percent in 2014, which should empower more Americans to buy homes.

Experts feel this double-edged uptick will be enough to overcome a 3.7 percent increase in home sale prices nationally (as predicted by the National Association of Realtors) and an increase in mortgage interest rates.

Interest rates hit historic lows in 2013 and then gradually rose a full percentage point by year's end. Freddie Mac reported that as of mid-January, rates on fixed 30-year mortgages averaged 4.41 percent; rates on fixed 15-year mortgages averaged 3.45 percent.

Economists such as Glink welcome the idea of a steady, slowly recovering housing and real estate market. "A cooling off in some of the hot markets isn't a bad thing," she said. "There were new bubbles forming and threatening to burst in some markets, and a slow-down could bring appreciation back to a more moderate rate."

What remains to be seen is just how fast market prices will rise. Equifax warns that if prices climb faster than income, the trend could push some buyers out of the real estate market.

Another factor to consider is the number of new households created by such events as divorce, death, or young people moving out of their parents' homes after graduating college. According to Amy Crews Cutts, chief economist at Equifax, the Great Recession greatly reduced the number of new households created annually—and she doesn't expect much change in 2014, particularly among young people.

Slim job prospects and financial insecurity among recent college graduates, combined with high student loan debt, may create a void of buyers that could eventually trigger pent-up demand for homes, said Crews Cutts. While this scenario is not likely to play out this year, it's worth keeping an eye on.