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Lisa Humenik's Blog

By Lisa Humenik | Agent in 44017

13 Real Estate Market Predictions for 2013 – U.S. and Northeast Ohio Real Estate

Last year was a pivotal year for real estate – both in the Northeast Ohio market and nationally. According to the most recent Zillow Market Report, November 2012 marked the 13th consecutive month of home value appreciation. On a year-over-year basis, home values nationally were up by 5.2% in November 2012 – a rate of annual appreciation that hasn’t been seen since August 2006 (when the rate was 6%), before the peak of the housing bubble. More than 75 percent of the 177 metro areas included in the Zillow analysis – 135 in all – experienced cumulative home value gains in 2012. Today, record-low mortgage rates and attractive prices, supported by declining unemployment, are luring buyers as the inventory of distressed homes shrinks. Homebuilders are responding by adding supply, bolstering economic growth. After reviewing projections of the top experts in the industry, here is what to expect for real estate in 2013:

1. Increasing Home Values / Return of Home Price Appreciation. Most real estate experts agree that home values hit bottom sometime in early 2012 (depending upon the market). For 2013, home price increases are expected to exceed inflation in most housing markets for the first time in nearly seven years. In many markets demand will out strip supply for homes in desirable price ranges. The most recent Zillow Home Value Forecast calls for 2.5 percent appreciation nationwide for 2013 (some expert forecast higher numbers). As the values of their homes rise, the equity position of homeowners improve, causing foreclosures to continue to decrease. Rising prices should lead to more inventory due to the fact that rising prices encourage new construction and rising prices encourage some homeowners to sell. More home inventory will lead to more sales and give buyers more homes to choose from – all positive outcomes.

Source: Trulia Trends Blog – Dec. 4, 2012

The Northeast Ohio metro area reached bottom in the 1Q of 2012 and started saw increases each quarter after.

Source: Case-Shiller Index / Standard & Poors – Jan., 2013

2. Reduced Home Inventory – According to the Wall Street Journal, last year might have been called the “Year of the Disappearing REO and they predict (if data-provider CoreLogic is right), this year (2013) will be the “Year of the Tight Inventory.” The healthiest regional housing markets are experiencing major reductions in their inventories of homes available for sale. Fewer listings mean more competition for what’s available for sale.

U.S – Existing Home Inventory Trend
Source – National Assoc. of Realtors, HousingTracker.net

Reduced inventories causes multiple offers and higher prices for the best homes. Inventory is low in desirable price ranges and/or desirable neighborhoods – these areas are truly a “Seller’s Market” and sell very quickly. The key question in 2013, though, is whether prices will rise enough so that for-sale inventory–(which has fallen 43% nationally since the summer of 2010) –will hit bottom and start expanding again. The sharp decline in inventory was a necessary correction to the oversupply of homes after the bubble, but now inventory is below normal levels in many markets and holding back sales. In Cuyahoga County, home inventory is down 61% form 2010.

3. High Rental Demand to Continue with Rising Rents - The rental market was a bright spot for investors and landlords in 2012, with rental values appreciating throughout the year compared to the prior year (currently at 4.5% national average) with continued increases projected in the next few years.

This rental appreciation spurred much investor interest (wanting to convert distressed single family residences into rental units), which in turn translated into rising home value appreciation in the for sale market in many markets across the nation. Experts predict additional demand still to come in the rental market as 3 to 5 million people (mostly in their 20s and 30s) start moving into their own apartments. Although, in many markets (especially Northeast Ohio), the cost of renting is higher than purchasing a home (see my recent blog post, “Northeast Ohio Real Estate – Rent or Buy? Why Northeast Ohio is one of the best locations in the nation to buy verses rent a home” for details) if a buyer can qualify for a mortgage.

4. Home buyers feel a greater sense of urgency - Investors, first time buyers and move up buyers will return to the housing market in 2013. Home prices are edging up in most markets, and buyers are taking notice. Buyer surveys recently have shown that home shoppers expect home prices to continue to inch up, and they want to cash in before they rise too much higher. “Combined with consumers’ growing mortgage rate and rental price increase expectations, the positive home price outlook could incentivize those waiting on the sidelines of the housing market to buy a home sooner rather than later and thus support continued housing acceleration,” said Doug Duncan, senior vice president and chief economist of Fannie Mae. (link to Housing Wire 1-7-2013). In addition, move up buyers will play a huge role as the re-enter the market again. As rising prices begin to have a positive effect on battle-worn home equity, those who have been delaying moving up can suddenly get back in the game.

5. Fewer Foreclosure Bargains - Foreclosure starts are falling (to pre-housing-bust levels) and there will be fewer foreclosure deals. Distressed home inventory has been drying up as investors purchase foreclosed properties and other low-cost homes.

Source: Data National Assoc. Realtors 10/2012 / Chart: KCM Blog

Foreclosures and other distressed assets not expected to flood the market in 2013 – There is still a sizable shadow inventory of foreclosures and Real Estate Owned (REO) properties to consider, but lenders and servicing institutions are not likely to unleash all of them into the market at once. The banks are predicted to continue to take a positive stance with regard to short sales in 2013, so the shadow inventory will most likely be non-threatening.

Source: RealtyTrac

6. More Short Sales – More banks have become “short sale friendly”. The short sale process has become more streamlined and with the extension of the Mortgage Forgiveness Act, expect more short sales, further reducing bank foreclosures. There is a record number of loan servicers that are using short sales as their primary loss mitigation tool to prevent delinquent loans from entering foreclosure. Short sales and deeds-in-lieu of foreclosure increased by approximately 23 percent in 2012 from the prior year.

Fannie Mae and Freddie Mac Short Sales and Deeds-in-lieu
Source: Federal Housing Finance Agency

7. . Mortgage rates have been at historic lows this year, so there’s only one direction for them to go. The NAR predicts that rates will gradually rise to average 4 percent next year, up from about 3.5 percent today.

Source: Freddie Mac

8. More Homeowners will say it’s a good time to sell. More sellers are expected to get motivated and list their properties for sale now that there is a price recovery underway. As home values continue their upward march in 2013, more homeowners currently trapped underwater will begin to surface and can now afford to sell (which will ease supply constraints in some markets). As the recovery blooms, “sellers will smile more, and buyers will need a more concentrated focus,” says Lawrence Yun, chief economist for the National Association of Realtors (NAR). Home buyers can expect to face stiff competition for highly desirable homes. The market is changing. Gone are the days of desperate sellers accepting the first low-ball offer to come along. Today, home sellers are feeling more confident about their position in the marketplace — and the value of their homes.

9. The number of improving housing markets contues to go up. A recent report by Trulia showed that real estate asking prices rose in 82 of the 100 largest U.S. metro areas in 2012. In 2011, asking prices rose in only 12 of 100 areas.

10. More first time home buyers - Home ownership remains a goal of members of the Millennial generation. First time home buyers purchased 31% of the homes in 2012 but had a more difficult time due to tighter credit. In addition, many were beat out on bids for lower priced homes by investors making higher offers and offering cash. More first time home buyers are expected to enter the market as the economy improves (although many will become renters first). A 2012 survey found that more than half of all first-time purchasers used the FHA program when buying a house. This is primarily due to the lower down-payment requirements and easier qualification criteria associated with these loans. But FHA mortgages may be harder to come by in 2013, as the result of some new rules for credit scores and debt ratios.

Source: National Assoc. of Realtors, September 27, 2012

11. Housing starts increase are picking up as builder confidence increases. Home builders are getting ready to address any inventory shortages with new homes.

Builders are becoming more optimistic that the recovery will continue and are stepping up construction. The rate of new home construction was nearly 22% higher in November compared with a year earlier. Builders are on track this year to start work on the most homes in four years. Housing starts, including single- and multifamily units, are expected to increase 24 percent to 967,000 in 2013, the most since 2007, according to the median of 17 estimates.

12. More new households are forming – Freddie Mac’s Chief Economist Frank Nothaft is forecasting a net growth of 1.2 to 1.25 million new households in 2013 that will provide a big boost to housing starts next year. That expected growth also will likely drive down apartment vacancy rates to 10-year low (see Rental predictions).

Source: Data – US Census Bureau 11/20/12, Chart: KCM Blog

13. Real estate will contribute to an overall economic recovery. Few things stimulate the economy as much as the purchase of a home. As housing rebounds, so do the peripheral jobs in the construction industry and sales of related products and services. Mark Zandi, chief economic analyst for Moody’s, states “A housing revival is key to any optimism about the broader economy and jobs,” explains Zandi to the Washington Post. “Now that housing is finally getting its bearings, it will turn from an economic headwind into a tailwind and become a significant source of jobs. There will be more construction jobs, construction-related manufacturing jobs, transportation and distribution jobs, retailing jobs, financial services jobs and a range of service jobs from cable hookups to landscaping. A better housing market is the principal missing link to a better job market.” Even though tight credit standards are holding some back (for now), those that can obtain are taking advantage of low housing prices and super-low interest rates. In addition, increasing rents lead many to think that buying makes more sense from a financial perspective. As a resolution for 2013, we hope that buyers and sellers “get off the fence” and do their part to get things “moving”.

In summary, homeowners looking to sell in 2013 can largely rest assured they won’t be selling at the bottom, and many will find themselves in a sellers’ market. “Prices are going into 2013 with strong tailwinds,” said Jed Kolko, chief economist for Trulia. He cites a general strengthening of the job market, which in turn means more families able to cover a sizeable down payment. An increase in household formation, which is also the product of improving job prospects, and home construction could further bolster demand. Potential buyers in 2013 may be more motivated to get a deal done while affordability is still extremely high and mortgage rates continue to be historically low. Ultimately, higher prices should begin to convince more sellers that they should list their homes, pushing inventory higher and creating a healthier, more balanced real estate environment for 2013. The housing market recovery has remained true to the old real estate axiom of “location, location, location.” How your local market (or neighborhood/price range) is faring today – and if it makes more sense to buy or rent, to sell now or to hold off if possible – is largely determined by unique, local factors and fundamentals. Utilizing the expertise of a experienced real estate professional who can provide comprehensive local market information is good advice at any time, but will be even more important in 2013 as buyers continue to seek a good deal and sellers look to maximize returns. But one overall consensus is that the real estate market appears to have a bright future in 2013.

Lisa Humenik ** RE/MAX Crossroads ** lisahumenik@remax.net ** (440) 476-4959 ** http://NortheastOhioRealEstateSource.com

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