2014 has been a roller-coaster ride for the housing industry, which balanced bouts of positive sales, starts and builder optimism with just as many setbacks. Most blamed the lows on an economy that’s recovering too slowly and banks whose credit standards are so strict that too few would-be, first-time buyers could qualify for mortgages.
Even as housing starts waned and sales of new homes weakened, however, most economists are predicting good news for 2015—both despite this year’s setbacks and because of its gains.
Here is a roundup of 2014’s housing winners and losers, from the perspective of economists at Realtor.com.
Winners
First, the good news:
The economy improved. Like housing, the country’s overall financial picture got a rocky start in 2014, partly because bad weather in most states tempered spending, job growth, manufacturing and homebuilding. As the year wore on, however, consumer confidence grew, job creation resumed and the GDP rose. Those trends are expected to continue into the new year.
Mortgage rates remained low. Despite what many foresee as an inevitable—and fairly gradual—increase in interest rates, it didn’t happen in 2014. In fact, rates declined, and interest for a 30-year, fixed-rate mortgage dropped below 4% toward the end of the year. Rates will almost certainly creep up toward 5% at some point in 2015, but exactly when is unclear.
Home prices rose in 2014, but not as fast or as far as they did in 2012 and 2013. Reasonable increases are much more palatable to potential buyers than wild spikes. An explanation on Realtor.com concludes: “We are now experiencing increasing in home prices consistent with long-term historical performance.”
Fewer owners lost their homes to foreclosure. Likewise, short sales tapered off during the year. By year’s end, foreclosures were down by 30% from 2013.
Non-resident investors backed away from buying single-family homes. Investors like to snatch up lower-priced homes. So as home prices increased, and as fewer foreclosure-induced “steals” hit the market during the year, the product available for sale became less attractive to those hoping to flip properties for a quick profit. The upside: There’s less competition for the lower-priced inventory that first-time buyers are looking for.
Those winning trends are expected to carry over into 2015. "Many of the gains that we recently predicted [for 2015] ... are built on housing growth established in 2014,” said Jonathan Smoke, Realtor.com’s chief economist.
Losers
Still, Smoke cautioned: “Unfortunately, the low number of homes for sale and stringent lending standards prevented a normal number of first-time home buyers from closing on their first home in 2014."
Here’s the bad news from 2014:
It was hard to qualify for a mortgage, so very few would-be, first-time buyers did. Low interest rates usually draw young newcomers into their first homes, but requirements for ultra-high credit scores and hefty down payments “shut out nearly half of the potential population this year,” Realtor.com reported.
Too few homes were for sale. Even as the inventory of homes on the market increased, it did not keep up with demand—and remained below normal levels.
The percentage of homebuyers who invested in their first-ever homes dropped to its lowest level in nearly 30 years, according to the National Association of Realtors. The dearth of first-timers is a major contributor to the sluggish housing recovery.
More people than ever rented homes instead of buying them, and that pushed rent prices sky-high. Economists predict even higher rents in the near future.
Builders broke ground on too few homes. Realtor.com reported that single-family new-home starts “barely budged” in 2014 compared with the year before. Fewer homes and fewer young buyers tend to push housing prices upward, which further limits the demand by young buyers.