First, the rosy news:
- According to statistics unveiled by the Federal Reserve, this year was the first time since 2008 when total home loan mortgage debt rose.
- Residential construction jobs actually grew in November, a clear sign that new construction and housing starts are on the uptick nationally.
- Likewise, employment numbers in areas of the country that were hard hit by the housing crisis increased slightly ahead of national growth numbers.
- Homes sales numbers were up through the first half of the year, and the Mortgage Bankers Association estimates that when all 2013 numbers are tallied, purchase mortgage volume will be up about 11% year over year.
- Spring and summer are right around the corner, traditionally the most active days for home buying.
Sounds good, right? But here are the reasons for caution and concern:
- Certainly that first stat, that total home mortgage debt has risen, seems like a good sign, but when we examine the causes, it becomes apparent that any increases are because the banks are foreclosing less, ostensibly keeping more mortgage debt on the books by eradicating less.
- Cash investors and purchasers are still a huge part of the market. In fact, 1/3 of the existing homeowner market is dominated by cash buyers or owners, with no mortgage at all. Any trend to cash that dominant is a bad sign for the affordability and access of average Americans, who need home loans to access housing.
- Interest rates are up on average from last year and even slightly higher than last week. Supply has hit a snag, further shrinking the affordability window.
There are also clear signs that the FHA and other government agencies are eager to step away from the mortgage market slowly, with no sudden movements and little attention, hoping that let private capital will step in to fill the void. That’s an optimistic supposition, one that could turn disastrous if private banks and equity aren’t ready to assume the risk of the housing market and don’t see a windfall of profitability compared to cost.
- The Federal Housing Administration announced that it will lower its loan limits from $729,750 to $6250,00 starting January 1, 2014. That comes on the tail of their policy shift to raise premiums and fees for borrowers.
- The Federal Housing Finance Agency (FHFA,) who oversees Fannie Mae and Freddie Mac recently announced that it would be raising the fees it charges lenders beginning in March. Of course those increases are expected to trickle down to the consumer.
- Additionally, rules for a new animal – Qualified Mortgages (QM’s) will take effect in January of 2014, as mandated by the Consumer Financial Protection Bureau. QM’s are supposed to be safe home loans (safe for the lenders, mostly) with legal protection against borrower lawsuits and other build in safeguards. The spine of QM’s includes no excessive points or fees to loans (below 3% of total amount borrowed) and the non-toxic nature of loans (no Interest Only, no Negative Amortization loans, No terms beyond 30 years, and no Balloon Payments.) While that looks like common sense, there are other parameters, and mortgages that don’t fit into that shrinking box will come with a big price tag.
What will 2014 hold? The National Association of Realtors still expects healthy double-digit appreciation. Interest rates may rise, but is expected to be cautious about gradual easing, not pulling the rug out from a slowly blooming home loan market. The big X factor is if private banks and capital see it as the right time to jump in as government agencies make it harder- and more costly – to play the home loan game.
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