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What will the housing market look like in 2014?

A spec home is offered for sale in a housing development in Volo, Ill.

Home prices are rising in the Sun Belt and most big cities. Everybody talks about rising housing prices as a good thing, but it’s not so great for people trying to buy a house.

Part of the reason housing prices have taken off? Investors. Some from other countries, some from Wall Street. They've snapped up homes at bargain prices, then rented them out.  Investor interest sparked bidding wars in housing markets, which Anthony Sanders saw first-hand when he bid on a house in the Virginia suburbs of Washington several years ago.

“I just happened to have one Chinese investor literally arrive at the house at the same time I did," he says. "And we almost had a foot race to the door. Fortunately, I’m faster.”

Sanders knows a thing or two about the housing market. He teaches real-estate finance at George Mason University, and says the bidding wars are producing bubbles in the hottest housing markets, like Los Angeles, San Diego and Charlotte.   

“That’s where the bubbles are forming," he says. "They’re old bubble cities, that are re-bubbling.”

Sanders’s fast footwork got him the house, by the way.

Economist Svenja Gudell, the director of economic research at Zillow, watches housing bubbles carefully. Because lenders stopped making shaky loans, and the bubbles are confined to the most expensive cities, Gudell doesn't expect another housing crash.

Plus, more houses are on the market. Fewer people are underwater – owing more than their houses are worth -- so they’re selling.  “You have more banks selling their foreclosures and you have more people freed from being underwater," she says. "So supply will increase.”

Gudell says as housing supply increases, prices will cool, and expects home values to rise 3 to 5 percent in 2014, as opposed to 2013's 7 percent.

Patrick Newport, a housing economist with IHS, agrees that prices won’t go up as much this year. His prediction? "A [housing] slowdown in 2015, and then going forward, prices growing maybe one or two percent above the rate of inflation.”

That's about the normal rate of growth, according to Newport. Low enough to banish housing bubbles — and housing bidding wars.

About the author

Nancy Marshall-Genzer is a senior reporter for Marketplace based in Washington, D.C. covering daily news.

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