Well, 2013 has officially come to a close, and 2014 is well underway.
For a moment there, it seemed as if each holiday was followed by a weekend, creating an endless vacation, but sadly it’s time to get back to work.
So without further ado, I present to you my top 10 predictions for the mortgage and housing market for 2014.
For the record, you can see my 2013 predictions here, which I’ll admit were a bit of a mixed bag.
1. Mortgage rates will inch higher
Last year, I expected mortgage rates to move somewhat sideways. I was wrong. They went up a lot more than I predicted.
This year, however, I see the movement a bit more muted, seeing that they’ve already risen so much (more than 1% in a year).
Most market pundits expect rates on the 30-year fixed mortgage to average close to 5% by year-end, which is less than half a point above current levels.
Yes, higher, but not that much higher. And still cheap.
2. Home price appreciation will ease, somewhat
Going hand in hand with that prediction is the expectation that home price appreciation will moderate after an explosive couple years.
Again, the idea here is that home prices have already chalked impressive gains, so the upside is more limited. Of course, that will depend on the region of the country in question. And our propensity to chase prices higher.
I’m not sure I agree with the really conservative views though – the housing market could surprise us yet again as eager buyers that missed out earlier try to get in late.
3. Housing inventory will remain tight
Yes, as home prices rise more homeowners will be able to list their homes (positive equity facilitates that).
But I don’t know how many of them will be quick to list, especially after waiting so long to get back in the black.
They might want to book a profit as well. Then there are the investors, who made it clear they plan to hold and rent for who knows how long.
4. Investor home purchases will decline
Speaking of investors, they should pump the brakes on home purchases this year seeing that home prices have risen so much.
Sure, they might still scoop up properties in certain hard-hit, non-fully recovered areas, but they’ll probably step aside and let everyday Joes get a piece of the action (at a premium).
5. ARMs will get more popular
Despite interest rates on the 30-year fixed slated to remain below 5%, more borrowers will turn to adjustable-rate mortgages to get their financing.
I think this will be a combination of lenders pitching more ARM products, along with the fact that fixed rates aren’t where they once were.
It’s an ego thing. Today’s home buyer won’t want a rate of 5% when their neighbor has a rate in the 3s.
Housing affordability, or a lack thereof, will also contribute to this trend.
6. Lenders will offer non-QM loans
Before the year ended, there was a lot of fear that the new Qualified Mortgage rule would neuter the mortgage market.
There’s already at least one major lender pledging to make interest-only loans, which happen to be explicitly banned under the QM rule.
My guess is more and more lenders will offer non-QM loans and hold onto them, which was kind of the point, right?
7. Conventional lending will stage a comeback
The last couple of years were dominated by FHA lending, which surged in popularity thanks to its soft underwriting requirements and low mortgage rates.
But now that the FHA is sticking it to new borrowers via ridiculously expensive premiums and insurance that stays in force to term, I doubt many borrowers will go the FHA route unless it’s a last resort.
At the same time, private mortgage insurers will help conventional lending reach more borrowers by easing guidelines.
8. Home equity lending will increase
With rising home prices comes opportunity. And one of those opportunities is tapping it.
I expect more and more borrowers to pull cash out via home equity lines thanks to much higher home prices. And they may actually use the money to improve upon their homes, instead of buying Hummers.
Speaking of home equity lines, a lot more are set to reset this year and the next, so expect more defaults related to HELOCs as well.
9. Foreclosures and short sales will fall to normal levels
Despite some reset-related foreclosure starts, I still see foreclosures and short sales falling closer in line with historical levels.
Both have already slowed tremendously, with foreclosure starts already at a 95-month low, per RealtyTrac. Short sales are also a dying breed because homeowners are able to sell at such a premium nowadays.
There’s no compelling reason to expect that trend to reverse course. I also think banks will spend more time on foreclosure alternatives than foreclosure itself.
10. Mel Watt will fight new fees
There have already been reports that new FHFA head honcho Mel Watt is more or less against the proposed mortgage pricing adjustments recently issued by Fannie Mae and Freddie Mac.
If enacted, they would make 780+ credit scores important, which one could argue is taking things a little too far.
I expect Watt to fight these fees tooth and nail on the basis that the housing market is far from fully recovered.
Hopefully he’s successful, seeing that new buyers will have to contend with both higher interest rates and home prices in 2014.
Stay tuned for 2015.