Now that we’ve kicked off the New Year, everyone is wondering which way the market will head in 2014. The general opinion across the board is that rates and home values will increase, but I believe the more important question is, “Why?” – so here’s my take:
- You may or may not know that the Fed was [artificially] keeping mortgage rates low by purchasing billions in mortgage bonds. However, just this past December they announced that they would reduce this spending by $10 billion/month.
- Also in December, the Federal Housing Administration announced that they would be implementing lower loan limits for FHA in many parts of the country, effective January 1, 2014.
- On January 10, 2014, The Consumer Financial Protection Bureau’s “Ability-to-Repay” rule will take effect. This will force lenders to gather more information than ever before in order to ensure borrowers are well qualified for a given loan amount. Basically, just because someone qualified last year doesn’t necessarily mean they’ll qualify this year.
- Lawrence Yun, chief economist of the National Association of Realtors®, said existing-home sales have shown a 20 percent cumulative increase over the past two years, while prices have gained 18 percent. However, incomes have risen only 2 to 4 percent in the same timeframe, despite an increase in the overall cost of consumer goods and services.
- Based on the fact that annual income medians have not increased in line with GDP per capita, it’s safe (and educated) to assume that the rise in home prices was primarily (though not solely) fueled by consistently low inventory and [artificially deflated] rates.
So now that we have some pretty big pieces to one very intricate puzzle, we can start to see the entire picture form. Mortgage rates will go up as they have been. Compound this with significant changes to lender guidelines and FHA loan limits, and you have a large-scale reduction to borrowers’ buying power (if not buying ability all together). So if everything we’ve learned about supply and demand is true, then can we really expect a spike in home values in 2014 given the above variables? The demand for properties at less than an area’s median value will stay strong, but more restrictive regulations will stifle buying power in certain price ranges and suppress demand.
Long story short, housing market trends will vary greatly state by state, city by city – just as they do now. Not every region will be a buyer’s market, and not every a seller’s market. New home sales may increase as resales decrease – or vice versa. Some other domestic or international economic variable may impact the housing market for better or worse – there’s just no telling for sure. So instead of trying to predict the future, let’s just take it one day at a time. If you’re in a position to sell or purchase a home and an opportunity presents itself, there’s no reason not to take it. Mortgage rates are still at historic lows and home values, though increasing, are still presenting great values. If you’re not in a position to buy right now, then this blog about how to Improve Your Credit Score might prove helpful in getting you where you need to be.
Either way, I believe Winston Churchill said it best when he said, “It is always wise to look ahead, but difficult to look further than you can see.” On that note, I wish everyone who reads this a wonderful and prosperous 2014.
Sr. Mortgage Banker
Cell (571) 246-4373
Fax (866) 477-7727