2014 Housing Changes and Predictions:
New lending rules will limit the number of working class buyers. By now, you have likely heard of the new mortgage rules that are going into effect January 1, 2014. As you know, the people who put these rules in place (Congress via HUD) believe these new guidelines provide greater consumer protections and will prevent a similar collapse we had in 2007.
The truth of the matter is, when a lender originates a mortgage that they are going to resell to Fannie or Freddie, the lender will have to raise their lending standards before they can approve the loan. As you can imagine, advocates for “affordable housing” are looking at these higher standards and having a fit. They don’t like these new standards because essentially, it begins limiting loans to high risk buyers with standards they aren’t going to be able to meet.
Regardless of what side you fall on in the Realolitical discussion (Realolitical = Realestate + Political) of affordable housing vs. stricter lending, the end result is fewer working class buyers in 2014 than we have had any time after the 2007 collapse.
Unemployment is predicted to remain at about 8% for 2014. The CBO (Congressional Budget Office) is a bit pessimistic for 2014 when it comes to unemployment. They are expecting unemployment to remain around 8% which means employment conditions will likely remain the same. This means that if we take a look at the hard number, we should be seeing about 300,000+ jobless claims weekly for all of 2014. This number will change according to seasonal work requirements but, essentially, 300K jobless claims weekly.
Long terms jobless benefits have not be renewed for 2014. Approximately 1 million people this week will NOT get their jobless benefits. These people will be forced to get creative with making ends meet. For many, the risk of foreclosure just became more real than it ever has been in the past. Right now, Congress is in heated debate about extending long term jobless benefits and it might get passed however, it may not happen in time to save many from foreclosure as Congress debates.
Approximately 52% of the American public are on the Government roll. In other words, the majority of Americans are surviving by taking the tax payments of the working public. This begins a paradigm shift in our country that will be very hard to stop. In fact, it makes our country more like Europe than we have ever been before. NOTE: France’s President this week won a legal victory which will see both individuals and companies that make more than 1 million dollars, pay 75% tax rate on that income for the next 2 years. So, in essence, if you make 1 million dollars, you will pay $750,000.00 of that to the government to pay your fair share in taxes. The really sad part is, even with this tax rate, it doesn’t even put a dent in France’s debt….they are still at serious risk of insolvency.
The bullish stock market will come to a grinding halt. In 2013, the Federal Reserve announced it will begin tapering off it’s Quantitative Easing bond purchasing program in 2014. Now, this is a very complicated monetary policy to explain but, essentially, it means that the Federal Reserve is going to stop printing money in order to stem off inflation concerns. Essentially, the Federal Reserve believes that too many dollars are in the system and in order to prevent out of control inflation, they need to pull back. Many analysis agree that the Quantitative Easing program is the lynch pin in the stock markets bull market for the past 2-3 years. Some are concerned that, without the Federal Reserve pumping money into the market….the market will collapse because our economy isn’t as strong as they thing it is. In other words, the Federal Reserve seems to be drinking the White House’s political kool-aid. The scary part of all of this, foreign countries are beginning to sell off their dollars. By doing so, our dollar weakens and inflation begins to get serious.
Finally Obamacare destroys the insurance industry and millions find out they are going to pay more for insurance than they ever had before. Sure, Obamacare advocates like to tell people that 2 million people signed up however, what they fail to tell you is that more than half of those are either 100% tax payer subsidized or a percentage thereof. They also forget to tell you that nearly 6 million lost their insurance in November and December of 2013 due to the new minimum insurance standards and that 30-40 million are at risk of losing their insurance once the employer mandate goes into effect. Everyone knows Obamacare isn’t financially solvent and the fact the law is raising premium for both individuals and employers, it’s believed that many will simply lose coverage or end up paying inflated prices they can’t afford.
So….add it all up and I do believe that in 2014, we will see absolutely no positive change for the real estate industry. If anything, we will see our industry grow stagnant and in some areas of the country, see increased inventories, lower prices and increases in short sales and REOs. I do believe high demand micro markets that aren’t over developed will be little safe havens but, unfortunately not enough of those exist to prop up the real estate market as a whole.
