Editor’s Note: this is the second in a series of articles written by the RealtyTrac editorial staff offering up our own personal predictions for the coming year. Please like or tweet these articles if you agree with the predictions, and feel free to chime in with comments whether you agree or disagree.
A lower foreclosure inventory combined with historically low interest rates and increasing sales volume has given the nation’s housing market a much needed shot in the arm in 2012. Whether those trends are sustainable in 2013 is questionable, although there are many promising signs that this will be the case.
There are some factors, though, that need to be settled before property values can truly return to at least a steady yet modest level of future appreciation.
The Fed’s Promises Felt
Fed Chairman Ben Bernanke came out with a couple of big ticket items in 2012. One, to maintain interest rates at or near historically low levels through 2015. If Bernanke and crew honor their commitment, the real estate market has a good chance of remaining a primary engine of economic recovery for the nation in 2013.
His second promise: to buy $40 billion in mortgage backed securities a month to prop up the nation’s economy in the short term. Whether the nation can continue to keep writing that check every month while the housing market continues on the road to recovery is less certain of a stimulus and will continue to be in 2013.
Killing the Sacred Cow
Realtors, homebuilders, real estate investors and potential homebuyers are holding their collective breath to see what happens with the sacred cow of the industry — the Mortgage Interest Deduction.
With Congress looking for a balance between taxes and spending for the next four years, the chances are good that the mortgage interest deduction is going to suffer some sort of change in 2013. If that happens, all bets are off and what we’re seeing now may be more of a dead-cat bounce off the bottom of an economic cycle than a true housing recovery next year. Wannabe buyers will hold off from buying a home and home prices will start their descent soon afterwards. The spring and summer buying season could be a wash next year.
And the biggest sales pitch for Realtors and homebuilders alike when approaching potential buyers, “The mortgage payment may seem a bit high at first blush, but don’t forget that the actual amount you’re paying every month is less because you get some of that back at the end of the year in interest deductions on your taxes,” will lose a lot of its effect on potential buyers.
More Buyers and Renters
With interest rates at such historic lows, and housing affordability up due to the heavy foreclosure volume of the past five years, it makes sense that 2013 should be a great time to buy, not rent — if you can get financing or have the ability to make an all-cash deal.
A continued tight lending environment will ensure that not everyone who wants to will be able to buy and will instead have to rent, which will ensure a good market for investors who buy and hold properties as rentals.
But those investors as well as first-time homebuyers will have to compete with one more emerging segment of buyers: former homeowners who lost their homes to foreclosure a few years ago and either moved in with family, or rented. Now those same former owners — called “boomerang buyers” by the press — are two years out from their foreclosures and are now back in the market.
In the end, those who can, will buy. Those who can’t, will continue to rent or move out of their parents’ house and start renting. That will mean the strengthening demand for housing — both from buyers and renters — that we’ve seen emerging in 2012 will continue in 2013.
Fannie & Freddie: Through Thick and Thin
There have been a number of calls — since the housing market collapse — to either disband Fannie Mae and Freddie Mac altogether, or to privatize them. The reason: we’ve spent too much taxpayer money bailing them out.
Getting them out of the way may be what the banking industry wants so they can run rampant, charging consumers what the market will bear for their money. But we’ve already been there a couple of times in recent history — the savings and loan bailout of the ‘90s, and more recently the subprime fiasco that got us into our current mess. Chances are President Obama and Secretary Geithner will not move on changes with Fannie and Freddie anytime soon until the nation’s economy is more stabilized.
2013 Housing Predictions Take 1