Let’s look at some 2013 housing statistics for Queens, Nassau and Suffolk Counties: closed sales as of end of November 2013 are up 19.1 percent over last year at this time. The average sale price has increased 4 percent year over year. The months supply of homes for sale has dropped 22.9 percent from a 10.9 months supply in November 2012 to 8.4 months supply as of November 2013. Homes are still in the “affordable range” (the Affordability Index measures the average cost to own against the average income for an area) but affordability has dropped 5.8 percent in the region as interest rates and prices have risen. (per Multiple Listing Service of Long Island)
The backlog of distressed homes is highest in New York and New Jersey – judicial states. Banks here are required to go through a complicated court process in order to foreclose which can take an average of 1,003 days (almost 3 years). The result is more distressed properties here than in the rest of the country where the other regions have already sold off such properties. New York still has a large number of short sales and foreclosures still working their way through the process and onto the market, which will affect price appreciation in those neighborhoods. A CoreLogic Report 11/2013 shows New York State with more than 9 months supply of distressed properties – highest in the nation.
Interest rates are expected to rise by 4th quarter 2014 and a recent survey showed Fannie Mae expecting 4.8 percent, National Association of Realtors predicting 5.3 percent, Freddie Mac 5 percent, and Mortgage Bankers Association 5.3 percent.
Dr. Stan Humphries, Zillow Chief Economist, sums up his prediction for 2014 as follows: “The conditions that led to the robust appreciation experienced earlier this year, including historically low mortgage interest rates, high affordability, low inventory and high demand are waning. In their place we’re beginning to see more inventory and rising mortgage rates, which will lead to further normalization in the market going forward.”
A more normal market is important as it is sustainable over a longer period and supports confidence and predictability in decisions made by those purchasing and selling real estate. Demand for housing will drive prices in the future as more households are created, and not inventory shortages as we have seen this year. Price appreciation by double digit numbers, as many areas of the country saw this year, quickly shuts many buyers out of the market and leads eventually to a correction. As more sellers realize more equity in their homes and find they are able to make a move that has been put off by the financial crises, the supply of homes for sale will become more in balance with the demand for housing and a normal market is created.
What we can expect locally for our 2014 housing market:
- Further normalization in the market.
- Single digit (not double digit) appreciation
- Increasing inventory.
- More distressed homes coming on the market.
- Interest rates rising to between 4.8 percent -5.3 percent