What’s Happening in Real Estate in 2014

Pauline Millard

real estate trend 2014The 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.

RELATED: New Mortgage Rules Take Effect in 2014

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.

  • Mr Nuff Said

    I’m a first time home-buyer and have been following trends for the last six months. If home prices continue to rise along with interest rates, doesn’t that exacerbate the problem with saving enough for a down payment and other requirements? Luckily I have been diligent, but I’m thinking that if I hold out long enough, home prices will either stagnate or fall as interest rates rise. Any thoughts?

    • Al Fek u Ep

      Depends on the market area of the community you are looking at. Remember low inventory high prices, high inventory low prices; why? because buyers will offer more than asking price or market value, thus appraisers will appraise the property a couple g’s more too. But seller’s who overprice will get low ball offers. Where I am at houses have risen nearly $40,000-$50,000 more. People will make very good money who invested in Real Estate 2 yrs ago. Also keep in mind that we may have 5 more yrs until Real Estate begins to lower again.

      • Mr Nuff Said

        We’re in the NY Metro area and waiting 5 years for it to cool off is not the type of time I can afford. I’m just hoping that things will continue to decline until around March/April. Hopefully inventory will rise by then and prices will lower AND the interest rate will stay relatively low.

    • JPVan

      As a first time home buyer you should recognize the trap you might find yourself in with the scenario you describe. If home prices stagnate or fall as interest rates rise (and they will), you would need impeccable timing and good luck for the stagnating or falling prices to help you unless you’re a cash buyer.

      To gauge investment sentiments about the interest rate environment, see how much a 6-month rate lock would cost you.

      With a preapproved loan at a known cost you can focus on the best home for you — one you can comfortably afford. For most people that’s about twice their annual income but American households all too often stubbornly push past that and go for all they can get.

      At one time the typical car loan had a 3-year term while the typical mortgage had a 20-year term. How quickly we forget.

      • Mr Nuff Said

        Very good points. I’m well aware that all clues lead to interest rates rising. We’re not cash buyers and COULD squeeze out a 20% down payment by June, however, timing is everything. I’ll definitely take your advice on the cost of a 6 month rate lock because it would DEFINITELY be worth it.

  • David R Sharp

    The major new requirement for mortgage applicants is that they have to have debt-to-income ratio no higher than 43%. This means that the total amount of your monthly payments on your loans, credit cards and insurance policies plus taxes must not exceed 43% of your gross income. If you want to qualify for a loan, you should restrict your current spending and try to pay off as much debt as possible. The faster you act the better. This is because interest rates are expected to rise slightly in 2014.