Real Estate and New year 2013 – What to expect?

Happy Newyear to everyone!!

As this year’s first blog, I want to take a look at the rear view mirror to get some perspective before discussing the 2013 forecast made by NAR Chief Economist. Looking back at the Real Estate Industry a year ago, we should be able to understand the progress made last year which will help us to set proper, realistic expectations for this year.

Every one was looking for the light at the end of the tunnel. 2012 was expected to be shine that light to signal the turn around for Real Estate. But nobody was able to strongly predict whether it will happen due to the unstable economic condition in US and all around the world. Proving the common fact, Real Estate is more local, many local Real Estate markets saw that light and able to progress forward with great confidence. Many markets including Texas finally hit bottom and start to rise again. Home prices, home sales and new home starts all substantially increased which might be propelled by shrinking inventory and record-low mortgage rates.

Lawrence Yun , chief economist of the National Association of Realtors®, said the housing market clearly turned around in 2012. “Existing-home sales, new-home sales and housing starts are all recording notable gains this year in contrast with suppressed activity in the previous four years, and all of the major home price measures are showing sustained increases,” he said.

Zillow estimates that U.S. homes gained $1.3 trillion in value during 2012, the first year of cumulative gains since 2006. The Case/Shiller Housing Index showed that home prices rose about 2 percent in much of the country. Anything in positive territory is a big gain for homeowners.

Ever since the financial crisis began, pent-up supply of unlisted distressed properties has loomed over the housing market. But in 2012, estimates of the size of that inventory continued to shrink, falling to 2.3 million in the second quarter of 2012 from a peak of nearly 3 million in 2010, according to analytics firm CoreLogic.

The Obama administration acted aggressively in 2012 to try to strengthen government relief programs, expanding the Home Affordable Modification Program and the Home Affordable Refinance Program. Loosening eligibility requirements and boosting incentives to banks, the government succeeded to some extent.

Mortgage interest rates fell in 2012 to historic lows. Consumer were able to get a 30-year loan for around 3.35 percent, a 15-year loan at less than 3 percent and a 10-year loan for around 2.85 percent assuming he/she has excellent credit and at least 20 percent equity in the property. And yet, despite ultra-low interest rates, millions of homeowners remain in financial jeopardy, unable to afford their payments, and unable to refinance because of declining or negative equity in their homes.

Investors raced in 2012 to snap up homes selling at bargain-basement prices and convert them into rental properties. Investors purchased 20 percent of homes sold in October 2012, according to the National Association of Realtors.

Lenders are alleged to have illegally foreclosed on thousands of borrowers by forging names on paperwork, a practice dubbed among other offenses. Lenders finally agreed to atone for illegally foreclosing on thousands of borrowers, and politicians and industry stakeholders seriously began talking about mortgage-debt forgiveness.

What’s 2013 Forecast?
At the 2012 NAR Realtor forum, NAR chief economist Lawrence Yun said that he expects the market share of distressed sales to fall from about 25 percent in 2012 to 8 percent in 2014, according to a release on the forum. The housing recovery was expected to continue so long as credit does not further tighten and a fiscal cliff is avoided.

The rise in home prices should also stay. Yun predicted a 6 percent rise in the median existing-home price in 2012, with another 5.1 percent increase next year and comparable gains in 2014. Existing-home sales were projected to move higher year-after-year: a 9 percent increase this year to 4.64 million, 5.05 million in 2013, and 5.3 million in 2014.

New-home sales are expected to increase to 368,000 this year from a record low 301,000 in 2011, and grow strongly to 575,000 in 2013. Housing starts are forecast to rise to 776,000 in 2012 from 612,000 last year, and reach 1.13 million next year. “The growth in new construction sounds very impressive, and it does mark a genuine recovery, but it must be kept in mind that the anticipated volume remains below long-term underlying demand,” Yun said. “Unless building activity returns to normal levels in the next couple years, housing shortages could cause home prices to accelerate, and the movement of home prices will be closely tied to the level of housing starts.”

“Home sales and construction activity depend on steady job growth, which we are seeing, but thus far we’ve only regained half of the jobs lost during the recession,” Yun said.

Mortgage interest rates were expected to eventually increase to an average of 4 percent next year, and inflationary pressure should cause rates to go up to 4.6 percent in 2014, the NAR said in the release. Yun projected a higher Gross Domestic Product (GDP) in the coming years, with GDP expected to be 2.1 percent this year and rise to 2.5 percent in 2013. The unemployment rate should also fall to about 7.6 percent in 2013.

Also speaking was Mark Vitner, managing director and senior economist at Wells Fargo, who said the fiscal cliff is the biggest situation that needs to be addressed. “Beyond concerns about the fiscal cliff, the economic improvement seems to be broadening,” he said. “Housing will strengthen in 2013 even if the economy weakens because there is a demand for more construction, and the demand for apartments is rising at a faster rate than the need for more single-family homes,” Vitner said. “Unfortunately, apartment construction is focused on about 15 submarkets, so additions to supply will be uneven.

“Real estate will be a hedge against inflation, with values rising 15 percent cumulatively over the next three years, also meaning there will be fewer upside-down home owners,” Yun said. “Today is a perfect opportunity for moderate-income renters to become successful home owners, but stringent mortgage credit conditions are holding them back.”

Check out full forecast summary at realtor.org

It’s clear that the residential real estate industry has turned the corner but to continue on this momentum we need employment growth. Without a good paying job that allows homeowners to afford their mortgage, it’ll be tough to generate the kind of strong housing market that Americans have come to rely on. We can only hope that Obama will use his second term in office to make the real change he been wanting to do with the foundation laid from his last term.

At home in Houston, it seems that scene was changed from buyer’s market to sellers market. Foreclosure inventory has gone down in many areas and investors were fighting for properties which was evident from the multiple offer situation quoted by many seller agents. “There were approximately 3,700 less active foreclosures in Texas from July through September when compared to data collected between April to June 2012,” said Foreclosure.com Vice President James Houston. New home prices have gone up every month in many areas like Katy, Woodlands, Cypress and Sugar land. The Reason, improved job market in and around Houston and people moving from out of state for employment.

My prediction, we will continue to see the increase in home prices both resale and new homes due to reduce inventory and more demand from people who stayed out for all these year and people who are moving to Houston. It doesn’t mean that you will not get a good deal. If you work with a Smart Realtor, you will still be able to find right property at right price.

All the best!!!

About Vijaianand Thirnageswaram

I am a Proud Realtor of Texas, trying to guide and help clients to find their dream home and educate them to buy them for right price. I am also a Candidate for CFP who has more financial knowledge which allows me share and educate clients in any financial decision making process.

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