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More home construction expected in 2014

By Jeff Collins
Orange County (Calif.) Register

While many in real estate called 2013 the year of get-in, get-out quick house flips, some of those same industry insiders expect the year ahead to bring more in-depth remodeling work on higher-priced properties.

“Since there are fewer short sales and fewer foreclosures out there, there’s less business to go around.” said Gabe Cole, a California broker who bought and sold 15 homes last year as part of his sideline as a house-flipper.

Many economists also predict that 2014 will see more investors retrenching and more buyers putting roofs over their own heads. That’s not the only big change ahead. Home prices are expected to stabilize this year, while homebuilding will be more frenetic.

“The housing market has staged a spectacular recovery over the past year,” economists Anil Puri and Mira Farka wrote in their 2014 economic forecast. “More recent data, however, point to a softening of these trends.”

Here are the top real-estate trends we’re likely to see in 2014:

More inventory

You can expect to see more people putting their homes up for sale this year, as rising prices bring new equity to underwater homeowners.

Other property owners also may take the opportunity to get their lives off hold and take advantage of higher home prices.

Donald and Stacy McCray are among them. Because of last year’s price gains, they believe now is the time to list their two-story house in Orange County, Calif., so Donald McCray, a railroad conductor, can move closer to work in Los Angeles.

“I’m hoping that since interest rates are still low, it’s a better opportunity not only to sell, but to rebuy,” he said.

Another factor: New home construction is expected to increase further this year, further boosting options for home shoppers.

New-home sales to rise

Nationwide, forecasters expect the number of housing starts to range from 1.19 million to 1.25 million, up from 975,500 in 2013.

Builders are compensating for years of light construction volume, said Robert Denk, an economist with the National Association of Home Builders. “There’s a huge construction deficit,” he said.

An increase in homebuilding means that new home sales should go up, too.

When construction levels fell, “buyers were forced into resale homes,” said housing consultant Mark Boud of Irvine, Calif. Many buyers prefer newer homes, which have the latest designs and are more energy-efficient.

“The reason (new home) sales will increase is we are supplying more product,” Boud said.

Mortgage rates to rise

Interest rates for 30-year, fixed mortgages likely will rise this year, averaging somewhere in the 4.9 percent to 5.3 percent range, forecasters say.

That’s still low historically but well above rates for the past 2 1/2 years.

The average rate for a 30-year fixed mortgage had been solidly less than 4 percent since late 2011. Last summer, it spiked to 4.5 percent.

The Federal Reserve’s decision last month to start reducing purchases of Treasury and mortgage-backed bonds likely will push up mortgage rates – but not wildly.

“Rates are not going to soar because we’re still in a pretty weak economic recovery,” Denk said. “When the dust settles, (rates) are still a bargain.”

Credit may be easier

After years of tight lending standards, homeowners should have an easier time getting mortgages, said Svenja Gudell, director of economic research for housing website Zillow.

After last summer’s 1 percentage-point increase in mortgage rates, the refinancing business dried up for lenders.

“They want to fill that void with purchase money loans,” Gudell said. That may mean lenders may approve loans to borrowers with lower credit scores or higher debt.

“So we’ll see a lot of people who couldn’t get a mortgage in 2013 able to get a mortgage in 2014,” she said.

Others, however, aren’t so sure.

For one thing, new federal lending standards took effect Jan. 10, meaning that some borrowers will get more scrutiny and less money. The new rules will have little effect in most cases, Gudell said, since most loans already meet the new standards.

But economist Esmael Adibi of Chapman University in Orange, Calif., said lenders will have more leeway with the loans they plan to hold in their portfolios. Tougher standards still will apply for loans that financial institutions plan to sell to mortgage giants Fannie Mae and Freddie Mac or elsewhere on the “secondary” mortgage market.

“Banks are eager to boost their lending,” Adibi said. “However, rates and requirements depend on the type of financial institution (offering the mortgage).”

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