If you're looking to sell a home, 2014 will be a good year though probably not as good as the current one. But if you're looking to buy, 2014 will likely be a better year than 2013. These are just some of the expectations that Jonathan Miller, president and CEO of Miller Samuel, a real estate appraisal and consulting firm, shared with The Daily Ticker.
Take home prices, which have been rising at a rate of 10%-12% -- depending on which data you use, for example. Miller says home prices will rise half as much in 2014 because more supply will come on to the market. Inventory is now below the usual six-month average, credit remains tight and unemployment and underemployment will remain high even if they've declined over the past year.
"How can we have price growth that we didn't see in decades? It doesn't make any sense," Miller explains in the video above.
About 40% of Americans have low or negative equity in their homes, says Miller. "They can't trade up, make a lateral move [or} downsize, so they sit."
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And those who have the wherewithal to move will find that mortgage rates are higher -- in part because of the Fed's recent decision to reduce purchases of Treasuries and mortgage securities -- and qualifying for a new loan will be tougher.
Under the Dodd-Frank financial reform law, lenders are required to meet new underwriting standards for "qualified mortgages" (QM) if they want greater protection from lawsuits. A QM loan must have a regular schedule for payment of principal and interest and fees paid by the borrower can't exceed 3% of the loan amount and monthly payments can’t exceed 43% of the borrower's gross income.
The new rules "will continue to slow the momentum of improvement " in the housing market, says Miller. They will "bog things down for the first half of the year...an adjustment period [for rules] that are "probably a necessary evil." The hope, of course, is that the new regulatins will help protect the financial system from a crisis like the one in 2007-2008.
These new rules will also impact Fannie Mae (FNMA) and Freddie Mac (FMCC) -- the government sponsored enterprises that are still the backbone of the mortgage market. They buy about two-thirds of new mortgages and bundle them into mortgage-backed securities for sale in the secondary market. Fannie & Freddie will buy only mortgages that meet most of the QM criteria.
In addition, Fannie and Freddie are raising the fees they charge mortgage lenders in exchange for guaranteeing new loans. The increase will make Fannie & Freddie-backed loans more expensive, which will create more opportunities for private companies to compete in the same mortgage market, says Miller.
That's "taking our medicine," says Miller. "It's very important to diversify the way the mortgage market is structured. Right now we're completely dependent on Fannie and Freddie, and that is not good in terms the long term," says Miller. He expects the private mortgage market will grow as Fannie and Freddie contract.
In the meantime the latest housing data is mixed. Sales of new homes in November fell 2.1% to a 464,000 annualized pace, but are still near a five-year high. Existing home sales for November, however, fell 4.3% to a 4.9 milion annual rate -- the weakest pace in 11 months.
What are your expectations for the housing market in 2014? Send an email to: firstname.lastname@example.org.
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