After year of struggles, the housing market roared back to life in 2013. The rebound will continue in 2014, but the pace will slow.

Experts say 2014 will be a year of continued growth and stabilization in the housing market with rising home prices, fewer foreclosures and greater activity among underwater homeowners. But this year’s market faces strong headwinds as inventory remains tight and both homebuyers and builders face tough lending standards.

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To buy a home in today’s market, you either need impeccable credit or the ability to make an all-cash purchase. The average FICO credit score on conventional loans used to purchase homes in November 2013 was 756, according to the most recent data from Ellie Mae, a company that produces mortgage underwriting software. The average score for denied applications was 729.

"To put that in perspective, the normal average acceptance score historically is around 720," says Walter Molony, a spokesman for the National Association of Realtors (NAR). "Right now, the average rejection score is now what the acceptance score was historically."

Don’t expect credit standards to ease up any time soon. This month, new Dodd-Frank regulations aimed at preventing risky borrowers and equally risky mortgage products from entering the market take effect. The new changes require lenders to closely evaluate such factors as a borrower's debt-to-income ratio, employment status, income, assets and credit history before underwriting a loan.

Home Prices Continue to Climb

In addition to tight credit, rising interest rates and home prices may discourage buyers from purchasing in 2014, says Jed Kolko, chief economist for Trulia.com, the real estate site.  Average 30-year mortgage rates bounced from 3.34 percent last January to their current 4.48 percent rate, with many expecting further increases of up to a full percentage point in the New Year. Home prices nationwide have risen 11.2 percent on average over the past year, according to the S&P/Case-Shiller home price index. Sunbelt cities in places like California and Arizona have seen home values surge in excess of 20 percent.

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While it remains a sellers’ market, price gains aren’t all bad news for buyers. First-timers may be discouraged, but increasing prices are music to the ears of current owners, many of whom are watching their formerly underwater homes gain value. More than 85 percent of homeowners with a mortgage in the second quarter have some equity in their home, up from less than 75 percent in the fourth quarter of 2011, according to CoreLogic.

"We saw a period where the first-time buyer was sort of a driving force," says Robert Denk, senior economist for the National Association of Home Builders. "We expect that to reverse....  As house prices rise, as fewer mortgages are under water, that should bring the more established [buyers], the trade-up market, back to some degree."

How much the housing market bounces back in 2014 also depends on construction activity. With builders still fiscally cautious and facing the same tight lending environment as buyers, expect a small increase in the number of new homes on the market. As buyer demand picks up, the pace of new home construction should follow.

"The [housing] bust was basically a five-year period where we produced and sold a fraction of the homes we would see in that normal market," Denk says. "We’re going to see a lot of that pent-up demand turn into realized demand. That will be an important driving force in 2014 and 2015."

Inventory Remains Tight

Still, the gains in demand (and the inventory that follows) will be slow. While total housing inventory declined in both October and November, unsold inventory is currently five percent higher than it was a year ago, according to NAR. The association predicts inventory won't radically accelerate until 2015.

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"I think 2014 will be the year when we see that home price appreciation pulls back to more normal, sustainable levels," says Daren Blomquist, vice-president of RealtyTrac.com, a site that aggregates real estate data. Markets that boomed in 2013 will likely scale back to more modest growth in the low double digits, while nationwide growth should average about 4.5 percent, according to Blomquist.

Even with recent gains factored in, most markets are not at risk right now for another housing bubble. Nationally, home prices remained 4 percent undervalued in the third quarter, according to Trulia’s Bubble Watch. Only Orange County, Calif., and Los Angeles are more than 10 percent overvalued, the report finds.

The hottest markets for 2014 won’t be in the big cities. A joint study of more than 1,000 real estate industry experts done by PwC and the Urban Land Institute ranks real estate prospects in smaller secondary markets including Houston, San Jose, Dallas/Fort Worth and Austin above those in larger cities like Chicago, Atlanta and Washington, D.C., where “there's a lot of money chasing a few assets,” says R. Byron Carlock, Jr., PwC national real estate practice leader.

It’s still 35 percent cheaper nationally to buy a home than to rent one, but that doesn’t mean millennials are rushing out to get a mortgage. Just 18 percent of consumers surveyed in September by Credit.com said that buying a house was still their definition of “the American Dream.”

A team of South Florida real estate professionals will head to the city of light at the end of the month to showcase some of the region’s new projects to potential Parisian clientele.

For the trip, MC2 Realty partnered with the recently formed Fédération des Professionnels de L’Immobilier de Miami (FPIM) and those behind some of South Florida’s new residential real estate projects, said Marie-Charlotte Piro, vice president of MC2 Realty and founder and president of the federation.

Real estate Dyman and FPIM partners – including attorneys and bankers – will make the journey to Paris, she said.

Two thousand potential clients have been invited to the two-day, invite-only event, Mrs. Piro said. The group is hoping to have 100 attendees, which she said would be more than enough.

Projects on show will include 1 Hotel & Homes South Beach, with partners The LeFrak Organization and Starwood Capital Group.

Mrs. Piro said the group has been working on the trip since November, and the next presentation could be in Geneva or Canada.

FPIM was incorporated last June, she said. The non-profit organization pairs French-speaking realtors in South Florida with French-speaking buyers from around the world who are interested in purchasing real estate in the region.

It was an idea she had been “massaging” for a couple of years.

The real estate business works a little differently in France and she wanted to make the process easier for agents and clear for clients.

She explained that in France, clients work with several agents to see all the properties, whereas in Miami they work with only one.

Many times, Mrs. Piro said, she would find out one of her clients was working with another realtor and would have to place a friendly phone call to them to make appropriate arrangements.

And roughly midway through last year, France was the origin of the most Miami property searches on the Miami Association of Realtors website.

“To find a realtor they go to the realtors association, which is a good thing, but the realtors association site is in English and most French people don’t speak English, or very few,” Mrs. Piro said.

“All these French people get lost in big national sites where it is very difficult for them to get the information that they really need… It’s time to incorporate as French realtors to be able to help them.”

When potential clients reach out to the group, they are directed to a list of agents.

The agents have criteria that are a little more personal than what language they speak and what area they work in, she said, adding that listed is the town they are from and university they attended.

Members of the group speak fluent French, are accredited by Florida’s Realtor Associations and have a strict code of ethical conduct.

There are two types of members – realtors and the partners. Partners include attorneys, business consultants, architects and builders.

And it’s not only buyers from France that are the sole focus of the group, she said, but also those from Belgium, Switzerland, Canada, Morocco, Algeria, Haiti and the French Caribbean.

FPIM also assists a lot of French-speaking buyers in commercial transactions, in particular multifamily buildings and businesses’ purchases, Mrs. Piro said.

Several of the group’s brokers, she added, are certified with the Business Brokers of Florida.

International investors with a total of US$2 trillion ($2.34 trillion) in funds have put New Zealand in their top-10 list of Asia-Pacific real estate investment targets.

A survey out this month from the Association of Non-Listed Real Estate Investors put New Zealand on its list for the first time, said Justin Kean, JLL New Zealand's head of research and capital markets.

New Zealand was ranked eighth.

"The association represents investors with a total portfolio of some US$2 trillion. If international investors allocated just 1 per cent of their assets to the New Zealand market, we would see $20 billion of capital head this way."

Kean said about $2 billion of commercial real estate going for $5 million-plus was sold throughout New Zealand.

That survey comes after Chapman Tripp said last week that more foreign buyers were likely to make bids for New Zealand assets this year with China at the forefront.

The law firm has released its view on trends and insights into New Zealand mergers and acquisitions and has picked foreign investment as an important trend in 2014.

Kean said international investors saw New Zealand as a key Asia-Pacific location.

"The economy in New Zealand has seen a good organic economic recovery kick in in the last 18 months. Positive pressure is warranting a firming of cap rates which is being driven by a weight of both local and now international capital.

"Institutional investors are back in a buying mode and this means that foreign wealth will start finding its way into the New Zealand property market," he said.

This year Japan ranks in first place as the most desirable place to buy property, with Australia second.

Previously, New Zealand was in the "other countries" category, Kean said.

"We don't have enough real estate to satisfy that demand. So the natural result should be there will be an upward pressure on prices.

"If a large asset were to come to the market, this would suggest it would be hotly contested among international buyers.

"If there was a big shopping mall or a commercial office block, local investors would have a lot of trouble keeping up with the pricing of foreigners.

"If you're in Switzerland and your cost of capital is 1.5 per cent, you can bid at a much higher price and still make the money you want but Precinct Properties or Kiwi Income Property Trust have to make a return commensurate with the rest of their portfolio," Kean said.

"We are aware of some trophy assets coming to the market. They're currently confidential but that will come along shortly. They're worth more than $100 million."

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