2014 housing market looks ‘good’, but lending may tighten

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CHARLOTTE – The year ahead will be “good, not great” for the housing market, with an anticipated 5 percent growth in housing sales from 2013, according to forecast Freddie Mac‘s Chief Economist Frank Nofthat delivered to an audience of real estate professionals at the UNC Charlotte Housing Market Outlook conference on Dec. 5.

Nofthat, the keynote speaker at the event sponsored by the university and the Atlanta Federal Reserve, noted that while affordability is high and interest rates remain low, the housing market faces headwinds particularly from unemployment, which sits at 7.3 percent – and nearly 14 percent when you factor in underutilized workers. Continued high unemployment as well as speculation that the Fed will taper back its bond buying will tamp down economic growth to 2.5 to 3 percent next year.

However, Nofthat believes that relatively low interest rates, rising to a predicted 5 percent in 2014, will promote further recovery in the housing market largely because homes are within buyers’ reach. “Affordability over the last three years has been sky high because mortgage rates have been dirt cheap,” said Nofthat, noting that current rates are still lower than in almost any point in the past 65 years.

Housing prices will remain stable and may rise 5 percent next year, according to Nofthat, because housing inventory has come down since 2008 for both single-family homes and apartment rentals.

Still, foreclosures will remain a drag on the housing recovery as the number of delinquent loans hovers at 2.6 million, about half the amount seen after the housing collapse, said Nofthat, who predicted that it will take two to three more years for delinquencies to work their way through the market.

For the Charlotte housing market, Eric Locher, president of the Charlotte Regional Realtor Association, anticipates 2014 to be a good year. “The first seven months (of 2013) were a real party for realtors and buyers,” said Locher. The market then slowed, but rebounded in September with closed sales up 25.9 percent from last year.

Representatives from other sectors of the real estate industry also presented their predictions and some of the challenges they expect in the year ahead. Experts from the mortgage industry spoke about the uncertainty arising from new legislation such the Dodd-Frank Wall Street Reform and Consumer Protection Act that has added compliance expenses to the cost of loans, as well as other rules that have tightened credit.

Phil Mahoney, president of American Security Mortgage, predicted added uncertainty for lenders and borrowers when the new “qualified mortgage” rules take effect in January. Under the rules, lenders may issue loans only to borrowers with debt-to-income ratios no higher than 43 percent. Mahoney worried that many borrowers may no longer qualify for loans, and lenders will not want to work with borrowers close to the threshold.

Legislative reform of the housing market under consideration in Washington also worried the. Congress is considering dissolving Fannie Mae and Freddie Mac, the government- sponsored enterprises that largely fund the secondary mortgage market, providing liquidity to lenders and money for new home purchases.  The U.S. House of Representatives and the Senate are both considering radically different proposals for these entities and it is unclear at this point what, if anything, will become law.