<p><strong>A house at the northwest corner of 35th Avenue and Columbia Street in the Madrona neighborhood. Photo by Joe Mabel</strong></p>

A house at the northwest corner of 35th Avenue and Columbia Street in the Madrona neighborhood. Photo by Joe Mabel

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We end 2013 on a positive note: The long, slow real estate recovery — now in its six year — gathered steam in 2013. Most Seattle-area neighborhoods have seen all their losses erased. With few exceptions, Seattle property values are back to where they were before the housing market collapsed.

As I look ahead to 2014, I’m cautiously optimistic. The real estate industry has been undergoing a transformation over the last decade, and the recession appears to have accelerated the pace of change. 

The traditional real estate brokerage model will face increasing headwinds going forward, while discount brokerages and small start-up real estate companies continue to gobble-up market share. This is both good and bad for consumers. Good, because consumers have more brokerage choices; bad, because the quality of service is being sacrificed in the new business models. 

Securing a discounted real estate fee gives consumers that instant gratification you only get when you’ve bought something at a deep discount. The downside comes later, when you realize you got exactly what you paid for: less service. 

Real estate agents will work harder in 2014, but many will earn less.  

Fewer buyers, higher prices

For sellers, you can expect a smaller pool of buyers. First-time buyers are scarce because many are saddled with massive student-loan debt. Plus, there are three people for every job, and wages are stagnant across a broad swath of the income spectrum. 

Downsizing buyers and empty-nesters are holding onto their present homes longer, which further reduces the pool of buyers. Some want to take advantage of the next round of price appreciation, and others are deciding to keep their homes and renovate rather than sell. 

Even with a smaller pool of buyers, you can expect upward pressure on home prices in 2014. The inventory of available listings is at a record-low level as we end 2013, and every agent I know is praying for more listings in 2014. Smart sellers will list early in 2014 and expect a windfall price.

For buyers, you face higher costs of obtaining a mortgage and little change in the tougher loan-qualification standards. However, I predict a return of more sub-prime-type mortgages for those with less-than-perfect credit. 

Lenders are feeling the loss of refinance business since interest rates began rising last June. You can expect lenders to create new loan products in 2014 to snag a larger share of the dwindling pool of buyers.

Rising interest rates

Interest rates are going up in 2014. Gone are 3-percent mortgage rates — unless you are considering an adjustable-rate mortgage. Adjustable mortgage rates are hovering around 2.75 percent. If you know that you won’t be in your present home in five years, then you should look into an adjustable-rate mortgage. 

Overall, interest rates will trend higher in 2014, likely bumping up against 6 percent by the end of the year. Banks, in an effort to lure upper-end buyers, are offering low, low-rate jumbo mortgages. 

Historically, jumbo mortgages were priced higher than conforming loans. The banks theorize that if they give affluent clients a below-market jumbo mortgage, they’ll have a client they can market other services to in the future. 

For middle-income buyers, there is no point in delaying the purchase of a home. Both home prices and interest rates are going up next year. Buy as soon as you are able in 2014. 

Foreign investors?

Investors have been a larger segment of the real estate market since the economic recovery began. Investors rushed to snap up deals when it became clear the real estate market was beginning to turn around. All-cash sales mushroomed. 

Rising property values have caused investors to back away, but price is only one factor in any investment. 

Have you noticed the higher rents? Rental rates have been rising at about 5 percent each year for the last couple of years, and rental rates are forecast to continue rising. This is due to a growing population and a building industry that can’t build new units fast enough to keep pace with demand. 

Investors should not be discouraged by the rising interest rates. Savvy investors will consider the other important factors of location and cash flow from any investment property.

Worries about a real estate bubble in China drove Chinese investors to buy real estate in the United States in greater numbers in 2013. Russian billionaires are buying up Manhattan’s priciest condos, and there’s a “boom” underway in Florida as a result of Brazilian investors. You can expect these trends will continue in 2014. Most foreign buyers are focusing their investments on the East and West Coasts, so Seattle can expect more than its fair share of foreign investment activity.

Another commercial success

2014 is forecast to be a robust year for Seattle’s commercial real estate market. Commercial investors began returning to the market in 2013, and I expect more commercial buyers in 2014. The inventory of commercial listings is low, which will put upward pressure on prices. The tight commercial lending climate has begun to relax, and I predict commercial loans will be more available next year. 

Seattle will continue to be one of the hottest real estate markets in the United States in 2014. As a result of our strong local economy, the Seattle housing market is currently ranked among the top-five housing markets in the nation: One list ranks Seattle No. 2 in the nation in 2014. 

I predict home prices will continue to rise next year, with appreciation exceeding the national average in 2014.

RAY AKERS is a licensed Realtor for Lake & Co. Real Estate in Seattle. Send your questions to ray@akerscargill.com or call (206) 722-4444.