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Whither Housing Affordability In 2014 ?

Mark Fleming, the Chief Economist of CoreLogic, compares affordability for existing homeowners and first-time homebuyers.  Fleming addresses squarely the fears that housing affordability will experience a “shock” in 2014, i.e., that “rising rates, increasing home prices and stagnant incomes will be the demise of the era of affordable housing, just when we need it most.”

Quick takeaway

1) The “shock” to affordability depends on context & ownership.  While the “rise in rates and increase in home prices has reduced affordability,” it’s not quite “shocking,” at least not by historic standards.

2) First-time homebuyers will be far more impacted than existing homeowners.

What’s the prognosis for interest rates in 2014?

Bill Gross (PIMCO) in his  January 2014 Outlook “Seesaw Rider” says that:

1) A policy rate hike is a long way away, 2016 at the earliest. The most critical monthly statistic for analyzing Fed policy in 2014 is inflation, and that was only 1.2% in December 2013, on an annualized basis.

2) Total return bond portfolios should float above water in 2014, with a likely 3% to 4% total return. Jeff Gundlach, another well-known bond market investor is also bullish on bonds

That said, I personally don’t think we’re going to return to sub-4% mortgage rates this year.  Or any time this decade.

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