Tepid Optimism is 2014 Outlook for Home Builders - Real Estate | Financial Buzz

Tepid Optimism is 2014 Outlook for Home Builders

Mortgage BuildersAs the Federal Reserve stimulus package begins to be scaled back, a big question-mark surrounds the housing market in 2014. The summer of 2013 saw the housing market slow down due to higher mortgage rates, but as the rates returned to lower levels in the fall the market picked back up. Following the rebound a couple of months ago, home builders are presenting a cautious but positive outlook for 2014. The builder confidence number is at 56 for January, down from 57 in December, according to the National Association of Home Builders (NAHB). A builder confidence level above 50 means that a majority of builders have a confident view of the overall market. The December number gapped up from November and has now leveled out at the start of 2014, bringing about the cautious optimism that characterized the announcement from the NAHB.

Most Builders View Conditions Favorably

The chief economist at the NAHB, David Crowe, explained that he believes the housing market will do well in 2014. He points to lower mortgage rates, increasing prices and “significant pent-up demand,” as reasons for his optimism. On the other hand, there are certain aspects of the economy that may put a drag on the housing market. Mr. Crowe pointed to these, saying, “the pace of the recovery could be stronger were it not for rising construction costs and inaccurate appraisals that are keeping some home sales from going through.” It remains to be seen how the housing market will respond to the slowing bond buying program the Fed has been engaged in for the past number of years.

Mortgage Rates Expected to Increase in 2014

Since May, mortgage rates have gained over 1%. A 30-year fixed rate mortgage came in at 4.51% last week, according to Freddie Mac, a historically low number. However, rates are largely expected to keep rising as the Federal Reserve slows in bond buying program, and the economy as a whole continues to improve. Lawrence Yun, a leading economist at the National Association of Realtors, projects that the 30-year fixed rates will move up to 5.5%.