An overview of the elements that are aligning that could result in 2014 being possibly the last good opportunity to buy or sell for years to come.
Rising home values will reduce your buying power
One Person’s 2014 Predictions
Spring of 2014 could end up being the optimal window to purchase real estate for the foreseeable future. Take risky economic policies that artificially suppress mortgage rates, couple it with the long-awaited recovery from the 2008 national real estate crisis, and add the tightening mortgage qualification practices with the looming end of QE4, and you have a formula for possibly the last strong Spring real estate market for years to come.
By all accounts 2013 showed increased strength in the housing sector, and 2014 is expected to build off of the successes of 2013 and be even stronger. With a strengthening real estate market we can expect housing prices to continue to increase. The unintended consequence is that as prices rise, our buying power is diminished – but that isn’t the only thing to watch.
What Else to Watch
You have probably heard that the unemployment rate was last reported at 6.7%, which could lead to further reducing your buying power. You may be saying “how does the unemployment rate impact my ability to buy?” The answer is the raising of mortgage interest rates. Back in 2012 when Ben Bernanke announced QE4 he broke new ground by setting the trigger for the end of the policy to economic factors, the key being “until the unemployment rate falls below 6.5%”. (Historically the trigger had been a calendar date.) Once the unemployment rate passes that threshold there will be compelling cause for the Fed to cease the buying of bonds which will lead to increased interest rates. Just in case you aren’t able to see how that reduces your buying power, a 1% increase to an interest rate can raise the monthly principal and interest payment you make on a $400,000 home by $244, if the rates increase by 2% that jumps up to $501, which is nearly a 25% increase. Add this to the limits that most lenders have adopted on January 10th to comply with the Dodd-Frank Act known as Qualified Mortgages which will generally require that the borrower’s monthly debt, including the mortgage, isn’t more than 43 percent of the borrower’s monthly pre-tax income. This new guideline is 2% less than the previously used ratio for determining buying power. What that means is that a borrower making $8,000 per month can’t have more than $3,440 per month in debt payments including their new mortgage, a reduction of $160 from previous policies. Bottom line – you will qualify for less of a monthly mortgage, at a higher interest rate.
There are millions of Americans who wish they had been given some notice of the potential collapse of the housing bubble back in 2005 when they were striking through appraisal clauses and writing escalation clauses on properties that only a year later would drop drastically in value, ultimately leaving them upside down. There is no way of predicting if all of these circumstances will align in such a way as to make 2014 your last chance to buy the home you want or need, but at least now if they do you can’t say it never occurred to you.
We have owned & operated Williams Realty since 2004 and selling real estate since 1987. The reason we started our own brokerage was so that we would have the flexibility to put money back into the pockets of our clients.
When you think of Northern Virginia Real Estate experts, think of Williams Realty.
Williams Realty can be reached at 703-980-4045 or SpikeandJulie@williamsrealty.us or www.WilliamsRealty.us we look forward to helping you assess your options and plan for your future.