What's on the Horizon for 2014

by Team Member 3. February 2014 12:45

By Pauline Millard

The past few years in real estate have been unpredictable. Between high foreclosures one year to low inventory in some major markets the next, it’s hard to tell where the market is going to go.

We turned to experts in the field and found a few constants that everyone can agree upon for 2014. A few might be a surprise. If you’re looking to buy a second home or buy a first one without it turning into a bidding war, 2014 may be your year.

1. Dodd-Frank lending changes

Gird your loins if you’re looking to get a mortgage in 2014. The lending changes in the Dodd-Frank Wall Street Reform and Consumer Protection Act, which took effect on January 10th, are an effort to prevent future housing meltdowns, and they have some tight requirements for borrowers seeking what are now called “qualified mortgages.” QMs are designed to cut the odds that borrowers will default, which in the long run is better for both consumers and banks.

One of the biggest changes is that lenders will be taking a closer looking at living expenses as well as your debt-to-income ratio, to make sure a borrower can make payments, especially if the buyer is applying for an adjustable rate mortgage. According to the new rules, borrowers cannot have a debt to income ratio over 43%. Everything from car payments to student loans will factor into this number, which means you may end up qualifying for a smaller loan than you expected.

There will also be fewer interest-only loans available, and it will be more difficult to find a loan that will last longer than 30 years. Paperwork will be key, as lenders will be asking for more of it.

2. Interest rates are most likely going up

No matter who you talk to, most experts agree that mortgage rates are going to go up, as they already have not just in the past year but in the past three months.

New Federal Reserve chief Janet Yellen is expected to continue buying blocks of mortgage-backed securities, as her predecessor Ben Bernanke did, in an effort to keep mortgage rates low. The Fed, however, has considered tapering its bond-buying activity as the economy improves, which could lead to a slight increase in interest rates. Lock in your rate early, since rates are expected to surpass 5% this year.

3. Expect turnarounds in a lot of cities

When it puts together its Turnaround Towns Report, Realtor.com crunches a lot of numbers, including nationwide median list prices in a variety of cities as well as the number of days properties for sale stay on the market. Based on this data, they’re frequently seeing signs of strength in areas that were previously hit hard by foreclosures or very high inventory.

Detroit tops the list of cities that are seeing a resurgence, as does the Santa Barbara, California, and Reno, Nevada, areas. The list also frequently highlights alternatives—thanks largely to booming tech cities—if you’re priced out of a large metro area such as San Francisco or Boston.

In that instance, Leslie Piper, who is a consumer housing specialist with Realtor.com and an active realtor in the San Francisco Bay Area, suggests looking across the bay to Oakland, where real estate deals are a bit more accessible and will garner strong appreciation in the years to come. Other cities such as Austin, Denver and Nashville also have growing tech scenes and will be great buys in the long term.

4. Save your pennies, since home affordability will decline

Home affordability isn’t just an issue in major markets like New York City and San Francisco, which are seeing median sales prices in the mid-to-upper six figures. The National Association of Realtors’ Home Affordability Index, which compares home prices with income, found that home affordability dropped to a five-year low in 2013 as increases in home prices outpaced income growth.

Jed Kolko, Trulia’s chief economist and vice president of analytics, recently told CBS MoneyWatch that he thinks the declining rate of homeownership is also due to a large drop-off in first-time buyers.

Unemployment—and underemployment—among 25- to 34-year-olds is high. Kolko says that if this group is considered the future of home buying and they can’t save enough for a down payment, it will be a while before the housing sector fully recovers.

5. Don’t count on finding a foreclosure

Fewer homeowners are losing their homes as the economy improves—and as lending rules tighten—so there aren’t as many foreclosure deals and short sales to be found.

“We’re in the homestretch of getting through the foreclosure crisis,” Daren Blomquist, vice president at RealtyTrac, which monitors the foreclosure market, told Kiplinger’s earlier this month. “But we won’t cross the finish line, with filings back to pre-crisis levels, until early 2015.”

READ MORE: http://www.forbes.com/sites/learnvest/2014/01/30/the-real-estate-crystal-ball-whats-on-the-horizon-for-2014/3/

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