What You Need to Know About the 2014 Real Estate Market

Interest Rates Are on the Rise, but There Are Other Trends Consumers Need to Watch

ATLANTA, Jan. 22, 2014 (GLOBE NEWSWIRE) -- Despite climbing interest rates and rising home prices, 2014 looks to be a year of continued recovery for the housing market.

Home prices are expected to increase around 3.7 percent, according to the National Association of Realtors (NAR). The unemployment rate fell to 6.7 percent in December, and the Federal Reserve expects it to fall below 6.5 percent later this year for the first time in more than five years.

"The housing market may not return to its pre-recession 'normal' in 2014 or even 2015, and there will certainly be new challenges ahead," said Ilyce Glink, real estate expert and Managing Editor of the Equifax Finance Blog. "But with more Americans employed and able to buy homes, we should see the real estate market, especially new construction housing, continue to pick up steam."

Here's what to watch for in 2014:

Increased economic growth. According to Frank Nothaft, chief economist at Freddie Mac, economic growth is expected to increase from 2.5 percent to 3 percent. That rate of growth should create more jobs, empowering more Americans to buy homes.

Rising home prices. Home values will continue to rise, Nothaft said, but not as rapidly as they did in 2014.

"A cooling off in some of the hot markets isn't a bad thing," Glink said. "There were new bubbles forming and threatening to burst in some markets, and a slow-down could bring appreciation back to a more moderate rate."

If prices rise faster than income, however, housing affordability—how likely it is for middle-income families to be able to afford to buy median-priced homes—could dwindle, pushing some buyers out of the market.

Uncertain household formation. New households, created by divorce, graduating college students moving out on their own and new immigrants moving to the country, are a key part of the housing market.

Since the Great Recession began, household formation slowed well below historic norms, and may not rise much this year. According to Amy Crews Cutts, Chief Economist at Equifax, the problem boils down to young people who have slim job prospects and are financially insecure.

Burdened with student loan debt and struggling to find work, many millennials are living with their parents or with roommates instead of striking out on their own. This creates a void of buyers that could, down the line, impact the real estate market in the form of pent-up demand for homes.

More insights about the 2014 housing market are available in Glink's recent post on the Equifax Finance Blog.

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Source: Equifax Inc.