Homebuyers' Success In 2014 Rests In Yellen's Hands

, Bloomberg News, Daily Business Review

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Janet Yellen
Janet Yellen

Adam Bregman, a 28-year-old West Palm Beach attorney who lives with his mom, said he hopes 2014 is the year he finally buys a home of his own.

Bregman's prospects probably will hinge mostly on one person: Janet Yellen.

Yellen, 67, who takes over as chairman of the Federal Reserve if the Senate confirms her in a vote scheduled for next week, will hold significant sway over the direction of the U.S. housing market in 2014. Following last year's jump in prices that rivaled gains during the housing boom, Yellen will guide the winding down of the Fed's bond-buying program that influenced mortgage rates for five years.

If Yellen tapers too quickly, investors could panic, causing mortgage rates to surge, said Diane Swonk, chief economist of Mesirow Financial Inc. in Chicago and an adviser to the Federal Reserve Board. If the new chairwoman goes too slowly, low rates coupled with an improving economy will cause the housing market to overheat, Swonk said.

"Mortgage rates will decide when we buy a house and what kind we can get," said Bregman, who has been living in his childhood home in Boca Raton for two years to save money for a down payment. "I'm hoping rates don't spike up another percentage point, like they did in 2013."

The average fixed rate on a 30-year mortgage was 4.48 percent last week, up from 3.35 percent in early May, according to Freddie Mac, the government-owned mortgage securitizer. Interest rates began rising after Fed Chairman Ben S. Bernanke, 60, told Congress he was preparing to reduce the bond-buying program.

The success of Bregman and other first-time buyers will largely determine the strength of the housing market this year, Swonk said. They have struggled to purchase property because of stiffer mortgage standards following the housing crash and a weak job market. The unemployment rate, at 7 percent as of November, hasn't been below that figure since 2008.

The share of homes bought by first-timers fell to 28 percent in November from 30 percent at the beginning of 2013, according to the National Association of Realtors. During the decade ending in 2012, the average was about 40 percent.

"So far, first-time buyers have been missing from the housing recovery," Swonk said. "They need to come into the market in greater numbers because they have to buy properties before sellers can move up."

Home prices probably will rise about 5.3 percent in 2014, half the pace of 2013, according to the Realtors association. Sales of existing homes will total 5.1 million in 2014, matching last year, the trade group predicts.

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