Cold Water on the Way for the Fiery Housing Recovery

Cold Water on the Way for the Fiery Housing Recovery

Some would argue that we’re not really experiencing a true housing recovery. After all, a large chunk of the population are still not participating in the markets. However, home prices have been jumping in most areas, with a lot of the upward pressure provided by low inventory and high investor buying activity. Consumers who want to buy a home are competing for dwindling supplies and it’s a recovery situation if prices are the major measurement criteria.
However, even by this definition, the recovery may be about to cool down quickly. In 2014 there are several economic and governmental factors that are expected to throw cold water on the markets:
• In January, the Qualified Mortgage rule goes live. This rule sets very strict new standards if lenders want to avoid borrower lawsuits. While current lending hasn’t recovered to post-bust levels, this rule is expected to reduce it even further.
• Discussions in both houses of Congress are ongoing for continued shrinking of involvement in the markets of Fannie Mae and Freddie Mac. Though there is no clear message yet from these discussions, they vary from more scaling back all the way to complete dismantling of the agencies.
• With almost one-third of all purchase activity this year coming from investors and volume buyers like Blackstone Group, any significant withdrawal by these buyers could bring about falling prices. With the stock markets raging of late, tiny increases in rents could be less attractive to investors than the newest IPO.
• Over the summer FHA loans took a big dive due to dramatic premium increases. The FHA has been a big factor in the markets with the lower down payments offered.
• It is widely accepted that mortgage interest rates will continue to rise in 2014, definitely a factor in keeping some buyers out of the market. Many families are barely able to qualify for a mortgage at lower rates considering stagnant wages. Higher rates will move them out of the market completely.
These factors are all coming together in 2014 and could create a “perfect storm,” but it will certainly be one with very cold rain on the housing market.

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