What can we expect the real estate market to do next year? No one predicted the intense bounce back that we’ve been experiencing for the past year, and everyone wants to know if it’s going to continue to increase, stay flat, or cool down. I think the answer is rather obvious – I anticipate the hot market will continue to increase. Without being overly analytical, just taking into account the major market predictors that influence our real estate market in a real tangible manner, I see a clear picture of next year’s market on the west side.
Low interest rates- with a threat of them going up (there is certainly no room for them to go down), high demand- especially for great properties, and the seemingly continued low inventory situation all point to a very similar market in 2014.
Let’s first look at interest rates. When rates are low, buyers can afford a more expensive house within their monthly budget. A $1,000,000 dollar mortgage at 4% will cost a buyer about $4,800 per month (fully amortized 30 year) and the same mortgage at 6% will cost about $6,000 per month. Another way to look at it would be that for $4,800 a month with a 6% mortgage they would only get an $800,000 mortgage. If rates increase, there is a 20% decrease in purchasing power.
Buyers are feeling that if they don’t buy a property soon, they will miss out on a huge opportunity, and get less of a house for the same mortgage amount.
The second factor that makes me predict a strong market next year is the large pool of buyers -cash buyers have been waiting, international buyers with huge budgets who see our real estate as a bargain at any price, and the usual pool of first time and upwardly mobile buyers. The steady stream of buyers have resulted in a market with high housing demand, often bidding up prices in multiple offers.
These market variables are linked. Low interest rates have contributed to high demand which has led to our third factor- a lack of good inventory. At the end of 2012 and the beginning of 2013, we saw properties begin to sell as the market began to improve. Good houses started to come on the market and would immediately receive multiple offers, often closing above market value. It became clear that great houses were in high demand. As we see the year close, there is still a lack of great properties. Sure there are some houses that have been sitting without an offer, but if the house next door comes on the market and it’s a great house, it will sell in a snap for more than top dollar.
Currently, the market has seemed to flatten out as we approach the end of the year. This is typical for the holiday season and doesn’t signify a substantial shift in the market. Come January, I think we will see the market perk up, and come spring I have a strong feeling we will see a continuation of the hot market of 2013.