2014 Housing Forecast and Mortgage Rule Changes
We’ve studied several housing forecasts from industry economists. The predictions from Capital Economics fall in line with our assessment of what’s ahead in 2014. The sharp climb in home prices in 2013 will slow this year as investors begin to slow the rate of home purchases from 2013. Other factors impacting home sales in the coming year include higher mortgage rates, more expensive home prices, and increasing available housing inventory created by fewer underwater homeowners and very active national and regional builders meeting housing demands throughout Northern Virginia.
Qualified mortgage borrowers attempting to buy a owner-occupied home in 2014 will find the process easier than 2013 when investors actively competed for limited inventory with all cash offers. The increasing inventory should also limit the number of competing offers and contracts requiring escalation clauses during the bidding process. Below are a list of considerations for purchasing and selling homes during 2014:
- This year home value gains are expected to slow to 4-5% after 12-13% gains in the Northern Virginia Region.
- Rising mortgage rates: An example of why mortgage rates should be the greatest concern of both sides of a real estate transaction. A 30 year fixed-rate mortgage with 20% down payment on a $200,000 loan: The monthly payments at 4.5% would be $1,013.37. At 5% the same payment increases to $1,073.67. This is an increase of $21,697 during the life of the mortgage.
- The current valuation of homes are now 12% below fair market value. This average was 21% two years ago, decreasing as housing prices have increased in a strengthening market.
- Home prices compared to disposable income: 14% undervalued.
- Housing prices compared to rent ratios: Fair market value.
- Housing prices are expected to peak in 2014. Subsequent annual price increases of 4% are forecast for the foreseeable future.
- Mortgage rates on 30-year fixed-rate loans are expected to increase to 5% at the end of 2014, rising to 5.5% by the end of 2015. The positive side of increasing rates are loosening credit requirements as lending profit margins increase. This should benefit first-time home buyers as strict mortgage qualification rules have blocked this group from owning homes.
- The Consumer Financial Protection Bureau has established new Qualified Mortgage and Ability-to-Repay Rules. These rules will exclude between 10-20% of borrowers who would have qualified for loans in 2013.
- The Federal Housing Administration (FHA) is lowering the maximum loan amount on jumbo loans from $729,750 to $625,500. This price range effects 1 in 4 houses in Washington Metropolitan Region. The standard down payment for FHA loans under $625,500 remains 3.5%. But down payment requirements for jumbo loans are 20% of the overall purchase price. Expect to see community banks and private lending institutions begin offering jumbo loans with competitive rates, and 5-10% down payment requirements.
- Mortgage applicants must have a debt-to-income ratio of 43% of gross income. Mortgage applicants now need to prove their ability to repay a loan based on cash flow.
The Bottom Line:
If your credit history has an occasional collection, your income isn’t clearly defined (such as self-employed and 10-99 wage earning mortgage applicants), your assets are hard to verify, and the value of your home is hard to appraise, you will have a difficult time qualifying to buy a home.
If you have added questions or you’re seeking loan qualification, we work with experienced lenders with a lot of loan programs. We would be happy to connect you to the experts in the mortgage industry. Contact us anytime. We also urge you to purchase Homebuying: Tough Times, First Time, Any Time by Michele Lerner. If you are new to the mortgage process, it is a good read for taking advantage of market conditions and making a worthwhile financial investment.
Contact us at (540) 446-6284 for residential real estate services in the counties of Fairfax, Prince William, Stafford, and Spotsylvania.
