Easier to Obtain a Mortgage in 2014: Zillow

Rising interest rates typically result in borrowers having easier access obtaining a mortgage, and 2014 should be no exception to this, Zillow predicts in an outlook report.

The Seattle-based company is forecasting mortgage rates will reach 5% by the end of 2014, which will be the first time rates got to this mark since early 2010. Currently, a 30-year fixed-rate loan is 4.46%, while the average rate on a 15-year FRM is 3.47%, according to Freddie Mac.

“The silver lining to rising interest rates is that getting a loan will be easier,” says Erin Lantz, director of mortgages at Zillow. “Rising interest rates means lenders’ refinance business will dwindle, forcing them to compete for buyers by potentially loosening their lending standards.”

As interest rates increase throughout 2014, this will make homes more expensive to finance. The monthly payment on a $200,000 loan will rise by approximately $160, Zillow says.

“Because affordability is still high in most areas relative to historical norms, rising rates won’t derail the housing recovery. Unfortunately, this isn’t true in all areas—affordability is starting to become an issue for some markets, particularly some of the booming California markets,” Lantz added.

Despite lending standards projected to be less strict next year, Zillow says homeownership rates will fall below 65% for the first time since 1995.

But for those who are homeowners today, there is positive news. Home values are estimated to increase by 3%. This is down from the surges experienced over the previous couple of years due to higher mortgage rates, more expensive home prices, and greater supply created by fewer underwater borrowers and a surplus of new construction.

A top 10 list was revealed by Zillow citing the “hottest” cities for 2014. Zillow combined data on unemployment rates, population growth and the Zillow home value forecast to determine the top markets in 2014 that are likely to experience heavy demand for homes, as well as increasing property values.

The top 10 “hottest” cities for 2014, from first to tenth, are Salt Lake City, Seattle, Austin, San Jose, Miami, Raleigh, N.C., Jacksonville, San Diego, Portland, Ore., and Boston.

“For buyers, this is welcome news, especially for those in markets where bidding wars were becoming the norm and bubble-like conditions were starting to emerge,” says Stan Humphries, Zillow chief economist.