One thing is certain: 2014 will be an interesting year for the real estate industry. The housing recovery will continue and Phoenix will see home-price appreciation continue in 2014. A new set of mortgage rules will emerge. Here are some of our housing market predictions, projections and expectations for 2014.
1. Home prices will continue to rise in most U.S. cities.
Home prices in the U.S. rose by more than 12 percent from July 2012 to July 2013, which included the Phoenix market. These prices will continue to rise again in 2014 and is predicted to be in the 8 percent range on average.
2. Investors will back off, leaving more room for “regular” buyers.
In 2014 buyers, who are purchasing a home as a primary residence, should face less competition from investors and investment firms.
Real estate investors tend to swoop in when markets bottom out, and then withdraw as prices rise. That is what we are seeing right now, especially in Phoenix where prices have been rising steadily for some time.
House flipping, which is the act of buying, refurbishing, and reselling a home within a short period of time has declined by 13 percent over the last year, according to RealtyTrac. Purchases from overseas investors have also declined.
We expect to see a continuation of investor pullout in 2014. It relates to some of the other housing market predictions on this list, as well. For instance, less investment activity from overseas will contribute to the price cooling expected in some of the hotter real estate markets in 2014.
3. The QM rule will define the mortgage market.
Wondering what it will take to qualify for a home loan in 2014? Take a look at the Qualified Mortgage (QM) rule. It will soon set the bar for lending standards in the U.S. This rule was mandated by the Dodd-Frank Act, and finalized by the Consumer Financial Protection Bureau in January 2013. It will take effect on Jan. 10, 2014.
The majority of loan products and programs will be aligned to the QM definition
At its core the QM rule is designed to make mortgage lending in America less risky. It prohibits high-risk loan products and features, limits certain points and fees to 3 percent, and sets a debt-to-income limit at 43 percent.
Here is the prediction for QM. The vast majority of loan products and programs will be aligned to the QM definition. In fact, the industry is already moving in this direction.
The Federal Housing Finance Agency (FHFA) has already said it will direct “Fannie Mae and Freddie Mac to limit their future mortgage acquisitions to loans that meet the requirements for a qualified mortgage.”
Additionally, the Department of Housing and Urban Development (HUD) recently announced it will “define all FHA-insured single family mortgages to be qualified mortgages, except for reverse mortgages insured under HUD’s Home Equity Conversion Mortgage (HECM) program.”
The forecast is that the QM rule will define the lending industry and the national housing market as we move into 2014.
4. Mortgage rates will rise above 5 percent sometime in 2014.
From May 2 to Aug. 22 of this year, the benchmark 30-year mortgage rate climbed 1.23 percent. This led to a decline in loan applications and a subsequent easing of lending standards. Rates have leveled off since then and there has been much less volatility over the last few weeks. But there is a major event soon to take place that could push mortgage rates higher in 2014. It has to do with the Federal Reserve’s QE3 stimulus program.
Since fall of 2012, the Fed has been purchasing $85 billion per month in Treasury and mortgage-backed securities. They have also kept the federal funds rate near zero for months. These actions drove mortgage rates to record lows in 2012 and have held them at historical lows since then.
The end of QE3 is near. Fed officials are expected to begin tapering the stimulus program later this year, or early in 2014. This likely will lead to a rise in mortgage rates next year. Mortgage rates are predicted to go above 5 percent sometime around the middle of 2014.