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Zillow Predicts Home Values to Rise 3 Percent in 2014; Mortgages Will Be Easier to Get

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real_estate_prediction_keysZillow is making four, bold housing predictions for 2014, and has determined which housing markets will be the hottest this coming year.

2014 Predictions

1. U.S. home values will increase by 3 percent.
2. Mortgage rates will reach 5 percent by the end of the year.
3. It will be easier for borrowers to get a mortgage in 2014.
4. Homeownership rates will fall to their lowest point in nearly two decades.

2014’s Hottest Housing Markets

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.

1. Salt Lake City
2. Seattle
3. Austin, Texas
4. San Jose, Calif.
5. Miami
6. Raleigh, N.C.
7. Jacksonville, Fla.
8. San Diego
9. Portland, Ore.
10. Boston

About the 2014 Predictions

Nationwide, home values will increase by 3 percent.

“In 2013, home values rose rapidly – about 5 percent nationwide and more than 20 percent in some local markets,” says 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.”

The 30-year fixed mortgage rate will reach 5 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 5 percent for the first time since early 2010,” says Erin Lantz, Zillow director of mortgages. “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 5 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.”

It will be easier for borrowers to get a mortgage than it was in 2013.

“The silver lining to rising interest rates is that getting a loan will be easier,” says Lantz. “Rising rates means lenders’ refinance business will dwindle, forcing them to compete for buyers by potentially loosening their lending standards.”

Homeownership rates will fall below 65 percent for the first time since 1995.

“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 ten – in a home, if only temporarily,” says 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.”

For more information, visit www.zillow.com.

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