Adam Bregman, 28, a Florida 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 this 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.
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"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 Bernanke 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.
"Whether any of the housing forecasts are accurate depends on what Janet Yellen does, and no one really knows what that will be," said Karl Case, co-founder of the S&P/Case-Shiller home-price index. "We've never seen an intervention in the market like the Fed has done, so we've never seen an unwinding."
With Bernanke at the helm, the Fed began purchasing bonds guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae in January 2009. The Fed's stated aim was to bolster the housing market by reducing financing costs. The program has helped to increase the Fed's balance sheet to about $4.03 trillion. Mortgage securities make up about one third of that total, giving the Fed ownership of $1 out of every $7 of U.S. mortgage debt.
The Fed announced Dec. 18 that it will trim its monthly bond purchases to $75 billion from $85 billion while reaffirming its stance to keep monetary policy "highly accommodative."
Yellen, currently vice chairman of the Fed, was nominated by President Barack Obama in October to lead the central bank after Bernanke's eight-year run as chairman.
"She'll probably continue on Ben's path," Case said.
Yellen has broken with Bernanke in the past, however. At a 2007 Fed meeting, Bernanke dismissed the danger posed by rising mortgage defaults, saying "the economy looks to be healthy."
Yellen, a former University of California at Berkeley professor of economics, voiced the opposite opinion.
"The risk for further significant deterioration in the housing market, with house prices falling and mortgage delinquencies rising further, causes me appreciable angst," she said, according to a transcript.
Yellen said in her Nov. 14 confirmation hearing that she'll maintain the bond-buying program until a "strong recovery" convinces her to end it. She didn't provide details on how she might taper the program.
Economists expect the Fed to cut bond purchases in $10 billion incremental moves until ending the program late in the year, according to the median estimate in a Dec. 19 Bloomberg News survey of 41 forecasters. The purchases have shaved as much as 1.2 percentage points off the Treasury yields that are used as a benchmark for mortgage rates, Bernanke said in a 2012 speech.
The economy probably will expand by 3 percent in 2014, which would be the fastest pace since 2005, according to a Dec. 18 forecast by Fed economists. Last year, the rate was 2.3 percent, they said.
"The Fed under Yellen will continue to make purchases, but at a lower rate as the economy improves," Case said. "If the economy stays on this growth path, housing will get enough help from an improving labor market to withstand a reasonable increase in mortgage rates."
Case said there's a danger of a rate spike if the Fed's tightening isn't done correctly.
"If that happens, your guess is as good as mine," Case said.
Bregman, the Florida lawyer, is a motivated homebuyer: He plans to marry in May.
The bachelor now sleeps in the same room he had in high school, which is still decorated with his basketball trophies and a plaque on the door saying "Adam's Room."
"Living with your parents can cramp your style, but it's a great way to save for a down payment on a house," said Bregman, who works for McDonald Hopkins LLC in West Palm Beach. "Just about everyone I know is either living with their parents or living four to an apartment to try to save some money."
He plans to live in a rental home for a few months after his marriage and then buy a place in July or August.
Every time mortgage rates go up, the size of the house the couple can buy shrinks because their financing costs increase. At the moment, they're planning to look for a home in the $300,000 to $350,000 range. If rates increase by another percentage point, it will knock them down to about $250,000, Bregman said.
Bregman also faces the toughest mortgage standards in more than a decade, which have kept some of his generation from buying their first home, said Chris Low, chief economist of FTN Financial in New York. The average credit score for borrowers in early 2013 was about 757 on a scale from 300 to 850, according to mortgage buyer Fannie Mae. In 2006, it was 716.
"This time around, first-time buyers have bigger hurdles to overcome than their parents," Low said. "If mortgage rates jump, that's just one more obstacle."
Bregman can only wish that Yellen, about 1,000 miles away in Washington, makes the right call on tapering.
"Yellen has control of the punch bowl," said Mesirow's Swonk. "If there's not enough punch, the party starts to die. If there is too much, it gets out of control."
With assistance from Joshua Zumbrun in Washington.