REAL ESTATE TRENDS TO WATCH IN 2014
Housing trends to watch in 2014 start with continuing low inventories, which will support rising prices. Increased demand reflecting increased levels of household formation will boost construction. Interest rates are still historically low, although they are rising. Minimum lending standards, although tight, will have to relax as home prices rise.
What is a QM? How Will New Regulations Affect Lending in 2014?
A new rule issued by the Consumer Financial Protection Bureau (CPFP) is to assure that lenders consider the borrower’s ability to repay their home loans. Starting January 10, 2014 all mortgage applications must meet a set of requirements to be considered a QM loan. A QM, or “Qualified Mortgage” include the following:
- Points and fees in the loan must be less than or equal to 3% of the loan amount
- Back End (Total) Debt to Income Ratio (DIT) of 43% or less. 43.01% would not be approved.
- No risky loans, such as negative amortization, interest only or balloon loans.
- Maximum loan term is 30 years (no more 40-year mortgages)
While designed to protect home buyers the tighter guidelines and underwriting requirements will cap the Debt to Income ratio at 43%, which means no more than 43% of your gross income can go towards resolving debt and mortgage payment each month. Until now most programs capped this rate at 45% so this is a slight adjustment downwards.
How Do Inventories Affect Sales Prices?
It is believed that home inventories hit bottom last year. Although inventories have increased somewhat the homes of homes for sale remains tight, and with less homes on the market higher prices will be seen. The good news is foreclosure-related listings have decreased dramatically. New home construction has started to increase, although at a moderate pace, due to moderate new home demand as many move-up buyers don’t have enough equity to justify purchasing that new home.
Over the past few years a handful of institutional investors have purchased tens of thousands of homes that they are leasing. Many of these homes were foreclosures and investors who could purchase with cash got the best prices. Investor purchases in such large numbers helped to stabilize the housing market. Lenders are continuing to extend debt financing to these borrowers which should keep returns for investors up.
Since 2011 in a 20-City Home Price Index Prices Are Up 20%
In the Northern Virginia region, prices are expected to grow the most in Virginia. Real estate has remained more stable than in many areas of the country. Real estate in Virginia is projected to grow in 2014. This is particularly true in Loudoun, Fairfax, Arlington and Prince William Counties. Demographics in Northern Virginia are changing as well as economic factors. Unemployment is lower than the national average, and more people are moving here with larger incomes and discretionary funds. The future of Northern Virginia real estate looks strong, especially in suburban communities in these counties. Specific areas in Northern Virginia worth mentioning for a strong real estate market include: The Shirlington community in Arlington County, Vienna, McLean and Great Falls in Fairfax County, and Woodbridge and Haymarket in Prince William County. In Loudoun County Leesburg and further west, Purcellville and surrounding areas, are worth watching in 2014 for value and homebuyer popularity as a result.
REAL ESTATE TRENDS TO WATCH IN 2014
By Monica Mock
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