The economy is strong enough that the Fed decided in December to scale back its bond-buying stimulus program, which has been in place for years. By stepping in as a major buyer of bonds – which are interest-bearing commodities – the Fed was able to artificially manipulate the markets in a way that helped to keep interest rates very low.
That was a helpful strategy at a time when credit was tight and people did not have the financial means to afford higher interest, and one of the main beneficiaries of the stimulus program was the housing market. Low prevailing interest rates make it easier to take out loans, especially for high-ticket items like houses. In 2013 we saw some of the lowest home mortgage rates in history, and that fueled a healthy year of real estate buying and selling.
For one thing that helped shrink the huge volume of foreclosures dramatically, thanks to lots of Fed and big bank support for facilitating short sales and other programs to help move inventory. With those homes no longer pulling down overall housing values because of their fire-sale price tags, the market for other homes strengthened and appraisals began to come in higher than they have in years. That boosted equity and helped convince buyers that the real estate market was once again a safe place to invest – with the potential for substantial gains for those who still got in while prices were extremely attractive and affordable.
Now that the economy can get off of life support from the Fed, interest rates are poised to start climbing – and since they have been around zero for about five years they have lots of room to rise. So don’t be surprised to find that mortgage rates start ratcheting upward in a stair step trajectory. The stock market is at new all-time highs, corporations are ready to invest much of the money they have been cautiously holding on the sidelines, and building permits for new homes are also enjoying some strong forward momentum. The days of ridiculously cheap loans are behind us, but as mortgages go up so will home prices – and that will reward homeowners with rising equity, making home purchases a good financial investment for 2014.
The savvy home shoppers won’t wait around for springtime – the busy season in the real estate business – because that is when the competition is going to really heat up. More buyers means more opportunity for homeowners to ask higher prices. So if you are buyer you should consider filing mortgage paperwork right now. As soon as you get an idea from the lender that you will qualify you’ll know about how much house you can afford and can start looking. That will also ensure a smoother closing, versus waiting until spring or summer when sales are brisk and banks are busy – which usually slows down the whole process and can significantly extend the time between signing a contract and completing the sale.
Homeowners ready to sell, on the other hand, should immediately begin to line up contractors to put the finishing touches on their homes and get them in tip-top shape with great curb appeal. By springtime most contractors will already be hired and committed to projects. Another good idea is to have a pre-sale inspection done, because a home inspector can tell you exactly what needs to be done to ensure that your home is good condition and free of problems that could concern a potential buyer or cause you to have to lower your asking price.