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The days of 3.5% 30-year fixed mortgages are over

Wednesday, 11 Dec 2013 | 10:00 AM ET
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Home sales will rebound: After a brief lull in the fall of 2013, I predict that sales activity will return to the market with more home buyers. The steep jump in home prices has brought thousands of homeowners above water on their mortgages, enabling them to sell and move. Negative equity has been one of the biggest barriers to home sales since the housing crash. Come spring, there will most likely be more sellers, more homes on the market and therefore more transactions.

Home price gains should ease: Prices will still rise, no question, but probably not as steeply as they did in 2013. Annual gains of more than 12 percent were driven in large part by investors on the low end of the market. As foreclosures ebb and fewer distressed sales are in the mix, prices will moderate. Still low inventories, however, will keep them in the positive.

(More predictions: Energy prices hit a 4-year low for 2014)

Rents will rise: Despite the return of home sales, renter nation should continue throughout 2014, as younger Americans and first time home buyers are still left out of the recovery. Saddled with student debt and unable to come up with the large down payments required from today's mortgage lenders, this cohort will probably continue to fuel both the multifamily apartment market and the single-family rental trade.

Mortgage rates will rise: 2014 prediction
CNBC's Diana Olick predicts the major developments in the housing market next year, including an end to the 3.5 percent 30-year fixed home loan.

Investors will not leave the market: Some have predicted that with rising home prices, the large-scale private-equity investors will leave the newly evolving single-family rental market. Just the opposite. Now that they have built economies of scale and figured out the management, they will most likely settle in for the long haul—perhaps not buying as many new properties, but keeping the bulk of the ones they have. Some smaller investors may opt to sell, but they may sell to the bigger guys rather than to individual-owner occupants.

(More predictions: 6 reasons why 2014 is the year the economy clicks)

Mortgage rates will rise: The days of the 3.5% 30-year fixed are over. Rates are already up well over a full percentage point from a year ago, and as the Federal Reserve begins its much anticipated exit from the bond-buying business, I believe rates will inevitably go higher. How much that affects home sales will depend entirely on job and wage growth. Mortgage underwriting will remain tight, but buyers with solid credit should be able to weather slightly higher rates. By historical standards, they are still relatively low. It is less rate and more availability that will continue to hamper sales.

A look back at 2013

Overall, my 2013 Predictions went well. I'll give myself an A-.

"Despite the return of home sales, renter nation should continue throughout 2014, as younger Americans and first-time home buyers are still left out of the recovery." -Diana Olick, CNBC real estate correspondent

Home Prices: Got this one totally right but underestimated the extent of the gains. Investors and move-up buyers pushed the higher-end market, and prices rose more than 12 percent annually.

Mortgage Availability: Got the general idea right. The new mortgage rules were released, and they will make loans more expensive. Credit standards haven't moved, either. Did not foresee the big jump in rates, however, owing to the talk last spring of the end of tapering.

Rents: Nailed it. No sign of easing at all. Renter nation is in full swing, as younger Americans either can't get the credit or don't have the desire to buy homes. Rents continue to rise and vacancies fall, as affordability and homeownership sink.

Foreclosures: Nailed it. Foreclosures and short sales have continued to ease, but the numbers are still elevated. Banks have been modifying more loans and writing down principal, and rising home prices have kept the newly delinquent loan numbers low.

Underwater borrowers: Nailed it. Different surveys show different numbers, but the steep rise in home prices pulled around 2 million borrowers back into equityland in their homes. Renovations took a big leap in 2013 as a result.

—By CNBC's Diana Olick. Follow her on Twitter @diana_olick

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