How often are you dealing with families or clients who are moving or about to move?According to the U.S. Census Bureau, about 40 million Americans—one in nine people—move each year. While
2014 Housing Outlook Still A Sellers Market But Better For Buyers Than 2013
"How can we have price growth that we didn't see in decades? It doesn't make any sense," Miller explains in the video above.
Related: Another Housing Bubble? “Maybe Not in Our Lifetimes”: Robert ShillerAbout 40% of Americans have low or negative equity in their homes, says Miller. "They can't trade up, make a lateral move [or} downsize, so they sit."
[Click here to check mortgage rates near you]And those who have the wherewithal to move will find that mortgage rates are higher -- in part because of the Fed's recent decision to reduce purchases of Treasuries and mortgage securities -- and qualifying for a new loan will be tougher.
Under the Dodd-Frank financial reform law, lenders are required to meet new underwriting standards for "qualified mortgages" (QM) if they want greater protection from lawsuits. A QM loan must have a regular schedule for payment of principal and interest and fees paid by the borrower can't exceed 3% of the loan amount and monthly payments can’t exceed 43% of the borrower's gross income.
Related: Inside Luxury Tiny Homes: Millennials, Retirees Bucking Mortgages and McMansionsThe new rules "will continue to slow the momentum of improvement " in the housing market, says Miller. They will "bog things down for the first half of the year...an adjustment period [for rules] that are "probably a necessary evil." The hope, of course, is that the new regulatins will help protect the financial system from a crisis like the one in 2007-2008.
These new rules will also impact Fannie Mae (FNMA) and Freddie Mac (FMCC) -- the government sponsored enterprises that are still the backbone of the mortgage market. They buy about two-thirds of new mortgages and bundle them into mortgage-backed securities for sale in the secondary market. Fannie & Freddie will buy only mortgages that meet most of the QM criteria.
Related: Fannie Mae Didn’t Cause the Housing Crisis, Free-Market Ideologues Did, Former CFO SaysIn addition, Fannie and Freddie are raising the fees they charge mortgage lenders in exchange for guaranteeing new loans. The increase will make Fannie & Freddie-backed loans more expensive, which will create more opportunities for private companies to compete in the same mortgage market, says Miller.
That's "taking our medicine," says Miller. "It's very important to diversify the way the mortgage market is structured. Right now we're completely dependent on Fannie and Freddie, and that is not good in terms the long term," says Miller. He expects the private mortgage market will grow as Fannie and Freddie contract.
In the meantime the latest housing data is mixed. Sales of new homes in November fell 2.1% to a 464,000 annualized pace, but are still near a five-year high. Existing home sales for November, however, fell 4.3% to a 4.9 milion annual rate -- the weakest pace in 11 months.
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