Report: Big Shift in US Housing Market in 2014

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Next year will mark the end of the refinance boom and the start of a market dominated by purchase money lending, the first purchase-dominated market in 14 years, according to Freddie Mac. 

"For the first time since 2000, we're going to see the mortgage market dominated by purchase activity as the refinance share drops below 50 percent," Frank Nothaft, Freddie Mac vice president and chief economist, said in the report. "And with mortgage rates rising, we're also going to see the home-sales gains as well as the impressive house price growth begin to moderate to more sustainable levels."

Interest rates have been increasing in recent weeks, reaching 4.35 percent last week, while mortgage activity falls. Next year, interest rates are expected to increase gradually, reaching 5 percent by year end. While higher interest rates will likely hinder affordability in high-priced markets, most markets are expected to remain affordable, helping to sustain the national market.  

Housing construction is expected to increase 20 to 25 percent next year, with housing starts growing to a pace of 1.15 million in 2014. Home sales are anticipated to rise about 5 to 6 percent next year.

Home values increased about 14 percent this year. Next year, the increase is expected to be about 5 to 6 percent. Similarly, the National Association of Realtors expects a 6 percent increase home prices next year.

Freddie Mac expects a "continued renaissance" in multifamily investments, as they become more attractive, compared to the first decade of the 2000s. Last month, Jones Lang LaSalle reported a 47 percent national increase in multifamily property sales.