Prepare for a year of more in the real estate industry — more improvement, mostly, but also more expense as mortgage rates, prices and rents rise.
Analysts expect a solid 2014 here and nationally, after a year in which the battered housing market got on firmer footing. They predict home values will continue rising and expect to see more choices for home buyers as higher prices pull in more would-be sellers.
Moody's Analytics is forecasting an 8 percent rise in average home prices in the Baltimore region this year, compared with a 5.6 percent increase last year. Federal budget cuts weighed on the local housing market last year, but that weight should lift in the latter half of the year with the easing of sequestration, said Celia Chen, a housing economist at Moody's Analytics.
"We're expecting sturdy growth in house prices in the coming year that will be supported by a stronger economy and still reasonably priced housing," she said.
Chen and other analysts predict a slowdown in price increases for the country as a whole. She's forecasting about 5 percent growth, compared with 10 percent last year.
"There are still challenges, but I think all in all, we should have a pretty solid housing market in 2014," said Keith T. Gumbinger, a vice president at mortgage information site HSH.com.
One of those challenges: Buyers shouldn't count on mortgage rates in the 4 percent range.
Rates for 30-year fixed-rate products were hovering around 4.5 percent at the start of the year, up from 3.3 percent a year earlier. Gumbinger and others think 5 percent or above is likely later this year, decreasing buying power — one of the reasons they expect a smaller increase in sale prices nationally.
The Federal Reserve decided in December to begin reducing its $85 billion a month bond-buying spree, which helped keep rates low. Subtracting $10 billion from those monthly purchases will add some pressure to mortgage rates, Gumbinger said. So will the healing economy.
But better economic news is also a housing-market plus.
"As the economy improves, people are more willing to make that big-ticket purchase such as a home," said Greg McBride, senior financial analyst at Bankrate.com. "We've had low mortgage rates for years, but when the economy stinks, nobody wants to buy a house."
Other factors that will likely influence — or be influenced by — housing this year:
Foreclosures: Fewer Marylanders are newly falling behind on their mortgages, but a lot of loans are very delinquent. Maryland's percent of loans in the foreclosure process was ninth highest in the country last summer, according to the most recent data from the Mortgage Bankers Association.
More of those homes could end up bank-owned and on the market this year.
Cheryl Hystad, executive director of Civil Justice in Baltimore, which helps people facing foreclosure, said mortgage servicers have a backlog of cases that stretches back several years. Servicers hit the brakes as the state increased foreclosure requirements during the mortgage crisis and the "robo-signing" paperwork scandal hit.
"The process really slowed almost to a trickle for a while," Hystad said.
Banks were also less than eager to put all their distressed homes on the market at once when prices were already falling. Now, with rising values, firms have a "greater incentive" to pick up the pace, McBride said.
Hystad encourages struggling Maryland borrowers to sign up for the state's foreclosure mediation process. People have been able to work out deals that keep them in their home in about 25 percent of the mediation cases Civil Justice and its network of attorneys have worked on, she said.
Renting: Tenants got a bit of a break last year, with median rents in the Baltimore metro area rising 1 percent after a few years of jumps in the 3 percent range, said Greg Willett, vice president of research for apartment market intelligence firm MPF Research. But he warns renters not to count on a repeat this year.
What held rents back was more apartments hitting the market — about 3,500 units last year, a sizable number for the area. Willett said the competition was focused at the higher end of the market, and apartment complexes in that category held rents steady later in the year to cope. Rents at lower and midprice complexes rose.
This year, builders expect to complete fewer new apartments in the Baltimore region — about 2,300.
"With less new supply in 2014, we think that rent number is going to go back up," Willett said. "If you're looking to lease an apartment, right now is the time to do it."
Underwater homeowners: The housing bust left millions of Americans, and tens of thousands of locals, owing more on their loans than their homes were worth. The problem hasn't disappeared, but it's easing as prices rise and borrowers make their monthly payments.
About 76,000 homeowners in the Baltimore region were underwater on their mortgages last summer, just under 12 percent of all mortgaged properties, according to the most recent figures from real estate data firm CoreLogic.
That's down from 105,000 — more than 16 percent of the total — at the start of 2010.
The area also has fewer homeowners hovering near the water line with too little equity to cover the cost of selling their property.
With rising prices lifting more boats, some owners who had been stuck can finally move. Homeowners who have never dipped underwater but were waiting to make up more of what they'd lost on paper during the bust might decide to hit the market, too. That could mean more choices for buyers after a slim-pickings year.
"As prices go up, people that previously were reluctant to sell become more willing to do so," Bankrate.com's McBride said.
Affordability: Rising prices — and mortgage rates — mean the housing market isn't as affordable as it was a few years ago. But "right now, affordability is still better than average," said Chen, the Moody's Analytics economist.
A family earning the typical income for the Baltimore metro area could buy a home that costs 77 percent more than the region's typical price, assuming a 20 percent down payment, she said. The measure, modeled after the National Association of Realtors' affordability index, has averaged 65 percent since tracking began in the 1970s, she said.
Still, high sales prices from the bubble, rising rents and pinched incomes mean many local residents are living in decidedly unaffordable housing.
Just under 24 percent of mortgaged households in the Baltimore metro area were strapped in 2012, with housing costs eating up at least 35 percent of their monthly income, according to the most recent data from the U.S. Census Bureau's American Community Survey. That's an improvement from 2008, when 27 percent of mortgaged households were in those straits, but worse than in pre-recession 2007.
The trend is similar for renters, except even more so. Rent ate up at least 35 percent of monthly income for four out of every 10 tenant households in the area in 2012, the Census Bureau said.
Home building: Looking to buy a newly built home? You'll probably have more choices.
Moody's Chen expects a faster rate of home building in the region this year than last, followed by "a much stronger pace of construction" in 2015 if shortages in materials and labor don't hold builders back.
"What we're expecting is basically that the housing market is coming back, jobs are coming back," she said. "The supply of new homes is so low that builders will really have to pick up the pace of construction in order to satisfy that demand."
That's good news, she said, because housing construction fuels job growth in fields as diverse as retail and manufacturing. Job growth, meanwhile, prompts further home construction. The opposite cycle was at work locally and nationally after the housing bubble popped.
Firms have already begun shaking off that years-long hangover. Baltimore-area permitting officials gave builders the go ahead to start construction on 40 percent more houses, condos and apartments last summer than a year earlier, the most recent data from the Maryland Department of Planning. The 2,356 approved units represented the most summer activity by far since 2005.
Russ Dickens, president of the Home Builders Association of Maryland, said 2013 started off relatively strong for the region's builders and developers. But the rise in mortgage rates, higher material costs and the government shutdown all dragged on the latter half of the year.
Still, he's hopeful for 2014. The recession and bumpy years since kept plenty of twentysomethings in their parents' homes — potential customers as the job market improves.
"We're pretty optimistic," said Dickens, a partner with Elm Street Development, a McLean, Va. developer that works across the region. "There's still a lot of pent-up demand there."