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2013, 11:45 AM PST by Matthew Gardner
2013: Another Good Year for Housing
Well, the time has come again to polish up the old crystal ball, gaze into it, and see what's in store for the housing market in 2013.
Having spent long hours staring into the mists, it appears as if this year will be about as easy to predict as last year. Not because of any fundamental change in the housing market itself – although I so see plenty of adjustments afoot – rather the future is clouded because of the prevailing fractured political environment.
That said, here is what I am looking for this year.
1. Interest rates are likely to stay at close to historic lows at least through the middle of this year. Inasmuch as there are some mumblings from members of the Federal Reserve relative to a slowing down in Qualitative Easing (which is basically the printing of money which is then added to the economy in order to stimulate growth) before the end of the year, I do not see this as putting rapid upward pressure on interest rates in the near-term. That said, I do think that they will start to come off their current lows, so now may well be a good time to lock in.
2. Housing prices have bottomed out and we will continue to see appreciation in values across the board in 2013. The caveat here is that we are unlikely to see the kind of upward pressure in values that was seen in 2012. Unless we see a rapid increase in inventory levels, look for more modest price increases – but increases we will certainly see.
3. In 2012, many were heralding the veritable tsunami of foreclosed homes that were certain to come to market and cause a rapid reversal in price gains. This, of course, did not happen. Many may remember the huge numbers that were being bandied around as to the number of foreclosed homes that were supposedly heading our way. I personally heard numbers as high as five million units. Now that the smoke has cleared somewhat, the numbers are becoming a little clearer.
With a shadow inventory of around 2.3 million units of pending supply, I am actually not too worried at all. We need to get these homes to market and sold, and we will. It's just a matter of how long it will take. With over half of these homes delinquent, but not yet subject to foreclosure proceedings, I believe there will continue to be a shadow well into 2014.
That said, demand from the investment community, as well as from buyers who are not finding sufficient choice in the non-distressed market, should continue to reduce the number of distressed properties.
4. Household formations should start to increase but this will not be enough to get the homebuilding industry back into full swing. Many builders are still uncertain, and while they see a supply/demand imbalance in the market, they have not yet pulled the trigger and gotten back to full production. This is likely to remain the case in 2013.
5. There are several buyer groups that are expected to make an entry into the market in 2013.
Entry level buyers – First-time homebuyers have been sitting on the sidelines waiting for a sign that we’re at the bottom. As they hear about price increases in their desired neighborhood(s) they are likely to rush to become homeowners.
Move-up buyers – The price appreciation that has occurred in the last year has already lifted over one million underwater homeowners above water, with future price appreciation to lift them even more. Look to see many of them considering trading up.
Move-down buyers – Empty nesters and retirees, who still have equity in their existing home, will think about buying a home that is more suitable to their current lifestyle. This may, or may not, include adult children as well as their aging parents.
Investors – Investors and, yes, even flippers, will continue to grow in numbers as they realize housing is the best risk-adjusted return on their money.
The recovery in the housing market has been a very long time coming, but I believe that it is here to stay, and all things being equal, I expect 2013 to be another good year.
Have a fantastic year!