Mortgages are going to cost more in 2014. After six years of steadily dropping, the home lending market finally hit an historic price floor in late 2012, with rates for 30-year fixed mortgages leveling off at about 3.38 percent. Rates remained in the 3’s through the first half of 2013 before finally popping up above 4 percent in June. The Mortgage Bankers Association is expecting mortgage rates to increase above 5 percent in 2014, and then increase to 5.5 percent by the end of 2015.

The fact that rates are going to rise is not unexpected. The question going forward will be how the higher rates will impact home sales and whether lenders can make enough from purchase loans to offset the drop in refinance activity.

Climbing housing values

Home values climbed across metro Phoenix again in 2013, and many neighborhoods saw double-digit increases. More than half of all the ZIP codes in Maricopa and Pinal counties posted their biggest annual increase in home prices since the crash, according to The Arizona Republic’s latest Valley Home Values Report.

The median sales price was $205,000 on Dec. 31, compared with $164,000 in December 2012. Prices also rose 35 percent in 2012, meaning prices are back to about 2003 levels for most people.

Most homeowners should not expect a repeat of big 2012 or 2013 price increases because fewer prospective buyers are in the market now. In addition, the number of listings available is up 10 percent from February 2014, according to the Arizona Regional Multiple Listing Service.

“We are seeing a big drop in demand compared with the last two years, and there are ominous indications of a softening market when we dig deep into the numbers,” said Mike Orr, director of the Center for Real Estate Theory and Practice at Arizona State University’s W.P. Carey School of Business. “The market conditions suggest prices will struggle to make any further upward progress in 2014.”

Southeast Valley

Home prices in many Southeast Valley communities have soared during the past few years as the area has drawn buyers of new and existing houses. Tempe posted the biggest increase last year, 26.3 percent. The ZIP code with the biggest jump in values across the Valley during 2013 is Mesa’s 85201, which includes the area around Arizona State University. Chandler had the smallest increase in its median home price last year, with a gain of 19.5 percent.

What is ahead

Most metro Phoenix neighborhoods will not see home prices climb in the double digits this year, but housing analysts say that is not a bad thing for the market after nearly a decade of big ups and downs. Slowing price increases and inventory balance should deliver a stable market for 2014. The number of sellers soon should approach the number of buyers. Finally, we are approaching market balance, a comfortable and coveted status in Arizona’s real-estate history.

• Ahwatukee resident Stacey Lykins, MBA, is a Realtor with Ahwatukee-based West USA. Reach her at (602) 616-9971, S.Lykins@LykinsProperties.com or www.LykinsProperties.com.

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