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Home values expected to increase in 2014

Published: Thursday, Jan. 9, 2014 9:07 a.m. CDT

By S.E. Slack

Real estate giant Zillow combined data on unemployment rates, population growth and its proprietary Home Value Forecast to determine which direction the real estate market is headed, along with critical key factors associated with it. The results might surprise you.

First, home values will increase. While the increase isn’t much – 3 percent – it is good news for areas that have continued to sink lower and lower from a real estate perspective. The hottest housing market in 2014 will be the capital of Utah, according to Zillow.

For buyers, even though mortgage rates will near 5 percent by the end of the year, Zillow said getting a mortgage loan will be easier.

Erin Lantz, director of mortgages at Zillow, said that fewer homeowners will be refinancing due to higher interest rates. That loss of business will force lenders to compete for more new home loans to offset their losses from the refinance side of the business. The end result, she said, is that lending standards should loosen up.

While higher rates will make homes more expensive to finance – the monthly payment on a $200,000 loan will rise by approximately $160 – 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,” Lantz said.

Still, she cautions, affordability is starting to become a concern for some booming markets, such as in parts of California. Many metros saw appreciation well above historic norms, sometimes 4 or 5 times their historic appreciation levels. As mortgage rates increase, home prices rise, and a larger housing supply is created by fewer underwater homeowners and more new construction, home values in those areas will see slower improvements.

Despite an easing of lending standards, don’t expect to see the lax lending that led to 7 in 10 people obtaining mortgages in the late 1990s and early 2000s. The homeownership rate will fall below 65 percent for the first time since 1995, according to Zillow, which is a more normal level.

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