Affordability

The standards set forth by Dodd-Frank will certainly make buying a home more expensive in 2014, but how much more expensive is still up for debate. The two largest factors that dictate current affordability are housing prices and interest rates. According to Renkes, the question is mostly one of supply and demand.

“What we’ve seen is that the demand for housing continues to outstrip the supply. We’ve had a double-digit increase in [home] prices in many markets,” she says. “Homebuyers are going to be getting less ‘house’ for the same amount per month than if they’d bought in 2012 or 2013.”

However, the impact of slightly higher rates is a minimal one; a half a point increase in rates will not have a huge impact on affordability. There is not a big difference between someone buying a house at 4.5 percent and someone buying it at 5 percent. However, the higher the amount borrowed, the more impact the slight increase will have.

Affordability is changing slightly, but with the additional cost comes added security for homebuyers.

“There is a compound factor,” Calk says. “Certainly as rates increase, homes become less affordable, but by the same token, customers are probably in a safer situation now than they have ever been.”

Savings Bonds

Perhaps even more important to the mortgage climate in the upcoming calendar year is the market for mortgage-backed securities, also known as mortgage bonds. They directly affect the mortgage rate; rates are directly linked to the trading of these bonds, and news regarding the market can affect the value of these securities, much like the stock market. In early 2014, the Federal Reserve announced that it will aggressively cut down on the number of mortgage-backed securities it has purchased.

The large number of bond purchases, which the Fed started in 2008, had kept the mortgage rate artificially low in an attempt to improve the economy. Homeownership is seen as a boon to the financial well-being of this country. The Fed believes that the recent economic improvement is for real, and is content to let the market develop without its large purchases of mortgage bonds.

Renkes noticed that change starting in late 2013, but she views the rate increase as a positive endorsement of our economy by the government.

“We’ve already seen more attention over interest rates, and I expect to see them increase another half point this year, into the low 5 percent range,” she says. “The good news is that the Federal Reserve has been clearly communicating this to the market for months, and it is prepared for what lies ahead. We’ve been riding a gravy train that had to run out at some point.”