If potential homebuyers thought 2013 was a difficult year for home buying they may be relieved by what 2014 has in store for the real estate market. With the elections happening in the New Year the federal government will see changes to the rules and regulations currently making their way through the house and senate.
There will be a lot of talk and promises made during campaign speeches, but big issues like the replacement of Fannie May and Freddie Mac or comprehensive tax reform will take a back seat as leadership thinks these ideas are too unlikable to handle in an election year. Serious consideration of a broad-based tax reform will have to wait until the next election sweep. Mortgage interest, capital gains and other key real estate provisions should be safe until then.
The fates of Fannie and Freddie may well be the same story: Though committee hearings were held this year in both the Senate and the House on how to phase them out and create a replacement secondary mortgage market system, the bills that have emerged are philosophically so far apart that the gap cannot be bridged in the 2014 election year.
Republicans in the House want little or no federal role in mortgage finance other than a pared-down Federal Housing Administration. Senate Democrats insist on a strong federal financial backup for the mortgage market, and more than a few would like to retain something along the lines of Fannie and Freddie, perhaps combined.
Meanwhile, Fannie and Freddie are generating surpluses and appear to be set to keep minting money by the billions for the federal Treasury. In a time of ballooning deficits, who is going to stop that?
Get ready for some exceptionally bumpy mortgage market conditions in the first half of 2014 as lenders to figure out how to comply with the new qualified mortgage and other rules taking effect, beginning in January. Look for longer processing times, more rejections on QM grounds, all complicated by likely increases in mortgage interest rates as the Federal Reserve’s “tapering” of its securities purchases begins to phase in. More contracts written on home purchases are likely to fall through, and applicants are certain to find early 2014 a more challenging marketplace than they would have encountered in 2013.
The Consumer Financial Protection Bureau will take a tougher approach on key issues with realtors, builders, lenders, equal credit opportunity and mortgage servicing complaints. The bureau will pick up on the Obama administration’s evolving shift to the left in domestic policy.
The overall real estate market in 2014 is likely to be the first “normal” year in terms of sales, inventory and price changes since the bust in 2008. Record low inventories in multiple markets, especially California raised home prices abnormally in 2013.
Listings should be less of a problem in 2014 for most of the country as sellers have more confidence they will get fair pricing and millions of previously underwater owners have crossed into positive equity status in recent quarters.
Unless rates spike or there is a market crash on Wall Street, there will be a better balance between supply and demand making 2014 potentially a great year for real estate.
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