Zillow is making four, bold housing predictions for 2014, and has determined which housing markets will be the hottest this coming year. Zillow feels that (1) U.S. home values will increase by three percent; (2) mortgage rates will reach five percent by the end of the year; (3) it will be easier for borrowers to get a mortgage in 2014; and (4) homeownership rates will fall to their lowest point in nearly two decades. To determine which markets will be the hottest in 2014, Zillow combined data on unemployment rates, population growth and the Zillow Home Value Forecast. The list is intended to give an early view into housing markets that are likely to experience heavy demand for homes, as well as increasing home values.
2014's Hottest Housing Markets
1. Salt Lake City
3. Austin, Texas
4. San Jose, Calif.
6. Raleigh, N.C.
7. Jacksonville, Fla.
8. San Diego
9. Portland, Ore.
1. U.S. home values will increase by three percent
"In 2013, home values rose rapidly—about five percent nationwide and more than 20 percent in some local markets," said Dr. Stan Humphries, Zillow chief economist. "These gains, while beneficial in many ways, were also unsustainable and well above historic norms for healthy, balanced markets. This year, home value gains will slow down significantly because of higher mortgage rates, more expensive home prices, and more supply created by fewer underwater homeowners and more new construction. For buyers, this is welcome news, especially for those in markets where bidding wars were becoming the norm and bubble-like conditions were starting to emerge."
2. Mortgage rates will reach five percent by the end of the year
"As the economy improves and Federal Reserve policies change, mortgage interest rates will rise throughout 2014, likely hitting five percent for the first time since early 2010," said Lantz. "While this will make homes more expensive to finance–the monthly payment on a $200,000 loan will rise by roughly $160–it's important to remember that mortgage rates in the five percent range are still very low. Because affordability is still high in most areas relative to historical norms, rising rates won't derail the housing recovery. Unfortunately, this isn't true in all areas-affordability is starting to become an issue for some markets, particularly some of the booming California markets."
3. It will be easier for borrowers to get a mortgage in 2014
"The silver lining to rising interest rates is that getting a loan will be easier," said Erin Lantz, Zillow director of mortgages. "Rising rates means lenders' refinance business will dwindle, forcing them to compete for buyers by potentially loosening their lending standards."
4. Homeownership rates will fall to their lowest point in nearly two decades
"The housing bubble was fueled by easy lending standards and irrational expectations of home value appreciation, but it put a historically high number of American households – seven out of 10 – in a home, if only temporarily," said Dr. HUmphries. "That homeownership level proved unsustainable and during the housing recession and recovery the homeownership rate has floated back down to a more normal level, and we expect it to break 65 percent for the first time since the mid-1990s."