The days of record-low interest rates and bidding wars may be a thing of the past in the new year. "For 2014, we expect that affordability will be worse," says Jed Kolko, chief economist at real estate website Trulia. Experts say homebuyers and sellers should brace themselves for higher mortgage rates and increased inventory in the new year along with looser mortgage lending standards.
The Federal Reserve's $85 billion bond-buying program has kept interest rates at or near record lows over the last few years, but the central bank will start tapering its purchases in January, a move that some experts say will cause mortgage rates to increase. " ... We will see mortgage rates shoot up," says Svenja Gudell, director of economic research at real estate website Zillow. She points out that just talk of tapering in September sent rates jumping to around 4.6 percent. While rates have since moved back down, she doesn't expect them to stay there too long. "Will likely see mortgage rates move up in the coming months."
While buyers will pay more in terms of their interest rate when purchasing a new home, Zillow predicts they will have much more inventory to choose from in 2014. Tight inventory levels in some markets led to bidding wars breaking out across the country in 2013. Not only were would-be buyers competing with other buyers, many were going head to head with investors making all-cash offers.
In 2014, Zillow predicts the appreciation of home values will slow. "We had around 5 percent appreciation in 2013 and next year we think it will be close to 3 percent," says Gudell. She attributes the decline to the market stabilizing. "This year there was such a feeding frenzy, especially in the summer. We don't think we will see that next year."
Higher prices will lead investors out of the market, further helping the inventory levels. Rising mortgage rates will also have a negative impact on demand next year. Kolko at Trulia predicts it will be easier for buyers to get a loan in 2014 as refinancing demand wanes and banks look for other revenue sources. "It will be easier to get a loan but you will be paying more for that loan," he says.
Because interest rates will be higher and investors have exited the market, Zillow is predicting the homeownership rate to continue to fall and dip below 65%. During the height of the housing bubble, homeownership stood around 70% with a large portion of owners not in an ideal position to own a home.
The wave of foreclosures and plunging home prices after the bubble burst made homeownership less attractive and many would-be buyers turned to renting. Given the bidding wars and buying frenzy that defined 2013, one thing real estate experts are expecting to see in the new year are more savvy buyers. According to RedFin spokeswoman Rachel Musiker, there is a lot of demand leftover from 2013 and even 2012 and these buyers know the market and have high expectations.
"Redfin agents have told us that their clients are coming into 2014 ready to win, prepared to negotiate aggressively to get under contract before mortgage rates rise," says Musiker. "We're anticipating that this year's buyers will be savvier than ever."
NEW LAWS AFFECTING HOMEOWERS IN 2014:
Under Dodd-Frank, on Jan. 10 mortgage lenders are given more responsibility for making sure that borrowers have the ability to repay loans. The eight areas subject to more scrutiny by lenders are borrowers' income or assets; employment; projected monthly mortgage payments; payments on other loans; other monthly mortgage-related costs; other debts, alimony and child support; debt-to-income ratio or residual income; and credit history. Lenders are also banned from charging upfront fees or points greater than 3 percent of the loan and for selling mortgages that include negative amortization; interest-only periods; terms longer than 30 years; and rapidly increasing "balloon" payments.
Though some property owners have been affected already, many more who've been buying federally subsidized flood insurance will likely see their rates go higher, and in some cases multiply -- unless a bipartisan effort to postpone the increases gains more traction in Congress. And those property owners would be joined by many others in newly designated flood-prone zones.
Incandescent light bulbs of 40 watts or more are headed for the collectibles market as they're banned from being manufactured, starting in 2014. For an equivalent amount of light, the alternatives include the now-familiar CFLs and the more recent vintage (and more expensive) LEDs.
After a three-year transition period that redefined what "lead-free" means, on Jan. 4, 2014, the maximum amount of lead that can be in newly installed plumbing products that carry drinking water is reduced from 8% to 0.25%.
The legalization of cannabis in Colorado means that starting in 2014 a resident can cultivate up to six marijuana plants consisting of "three or fewer being mature flowering plants ... provided that the growing takes place in an enclosed, locked space, is not conducted openly or publicly, and is not made for sale." (So leave the cannabis out of your curb-appeal landscaping.) However, it will be permitted to smoke marijuana on your front porch in Denver despite recent efforts there to ban that. But on the flip side, Colorado property owners can also bar others from growing or even possessing marijuana on their property.
Advocates for landlords and tenants in New Hampshire have combined to come up with a way to get rid of the bedbugs first and figure out who bears the cost later. Landlords will be responsible for acting to eliminate the pests within a week of being informed by tenants of a bedbug problem, and landlords will pay initially. But if the renters are found to be responsible for the bugs, they might have to reimburse landlords for the eradication. The new rules are designed to counter the kind of landlord-tenant dispute that can lead to further infestation as it drags through court, reports The Associated Press.
In California, businesses other than utility companies must get the consent of individual consumers before being allowed to share data about customers' energy use that was collected from smart meters. Even if the non-utilities are able to gain consent, though, they'll need to take appropriate measures to keep the data secret from unauthorized users.
Texas will require the fingerprinting of those applying for or renewing licenses as architects, as part of a criminal-background check. It will be the only U.S. state with such a requirement, according to The Architects Newspaper. The reason? David Lancaster, senior advocate of Texas Society of Architects told the paper that "the legislature became convinced that if there was an individual licensed by the state who had access to someone's kids, to their house, to their money, or to drugs or explosives, then steps needed to be taken to do a more thorough background check."