Optimistic Housing Market Outlook for 2013 Hinges on Home Prices

by 19 Dec 2012

For real estate and mortgage professionals, 2012 will always be remembered as the first year that ended in a positive note since 2006, at least with regard to home prices. As the housing market heads into 2013, home buyers and sellers are mostly optimistic because they don't have too much to worry about, at least not on the surface. Gone are the concerns about reaching a bottom in terms of home prices, and there is no short-term incentive like the First Time Home Buyer's Tax Credit to think about. 

Positive Signs

As recently reported on the Wall Street Journal, the large inventories of available homes are now a bygone concern. Home builders are stepping up new construction projects, mortgage interest rates are low, and the home affordability index is still encouraging, albeit beginning to step down. Vacancy rates are also falling, and the steady climb of rental prices may motivate some renters to become purchasers. 

Some investors are still hoping for the shadow market of distressed properties to liberate some rock-bottom deals to take advantage of, but they can't wait forever. As competition heats up and the shadow market continues its inactivity, investors may move away from the red-hot markets like Miami and Phoenix into other populous opportunities like Chicago. 

Even Pace for Foreclosures

With an average 5.6 percent of mortgages currently under in foreclosure in those states that require a judicial process, the likelihood of a foreclosure avalanche is nowhere as strong as it was in 2010. The worst effect that the shadow inventory has on the housing market is when too many foreclosures are completed and come on the market at a time when no one is buying. That is not likely to happen in 2013. 

Real estate investors and flippers will be on the lookout for foreclosures coming to the market in 2013, particularly in markets like Atlanta and Chicago. This will prevent these distressed properties from ending up listed for a very long time and diluting real estate prices in their neighborhoods.

As long as foreclosures continue to be processed at an even pace, they will be quickly absorbed and will actually alleviate inventory shortages in the housing markets that enjoy greater demand.

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