What does 2013 have in store for the housing market? With marked gains this year, most experts expect the market to continue to slowly increase momentum BUT (the inevitable ‘but’) credit remains absurdly tight despite low rates with the Wall Street Journal intoning, “While rising prices could serve as a tailwind, new regulations may lock in some of the defensive underwriting posture while impeding capital rules may lead banks to pare their lending footprint.” Got that?
Tight credit is just first on the list of Fab Five (obscure Michigan basketball reference) housing issues to look for in 2013. What else? How about rising prices boosting demand for No. 2? Buyers now have something they haven’t had in the past few years… a sense of urgency. Rent and price gains are beginning to change consumer attitudes about home purchases.
Numero Three-o: Housing inventories should hit bottom (absent some regional exceptions within San Mateo County). Builders are ramping up new construction - remember substantive new housing construction in San Mateo County? I thought not. Let’s hear it for the NIMBYs - and price gains could lead more would-be sellers to test the market.
Quatro: Home prices should stay in positive territory next year. Yes, despite the ‘happy news’ from the usual media suspects, job growth hasn’t been great; yet it has been strong enough to nudge the housing market forward. And with the shadow inventory shrinking, banks could begin to increase the pace of foreclosed-property sales in markets with large backlogs, but they’re unlikely to deluge the market.
Factoid 5ive: Underlying all is the broader economy. It will dictate how far the housing recovery goes… if unemployment decreases and the economy improves, many of the biggest challenges facing the housing market may somewhat fade such as the aforementioned tight credit; a decrease in the number of underwater home owners (not a Superstorm Sandy reference); and, a continuing elevated rate of foreclosures.
Any renewed weakness in job growth could push housing to where it found itself in between 2010 and 2011. The housing market is still fragile. Millions of homeowners owe more than their homes are worth, and millions more don’t have enough equity to make a down payment on another home.
And while the fiscal cliff scheme extended the Mortgage Debt Forgiveness Act, the “other shoe” has yet to fall - renewed scrutiny of the mortgage interest deduction. (There will be no wholesale repeal. Barry the O has promised as much.) The possibilities are compromises that cap overall deductions -or- reduce the deduction for top earners - or- that limit the deduction to a home price of $500,000 or less. All of which stink. (That’s a fiscal term I am told.)
But absent a renewed recession or other unforeseen shocks, housing in 2013 looks poised to consolidate the gains of 2012. The Federal Reserve has made clear it will do what it can to be rates low. Homes are still at their most affordable levels in at least 15 years, based on traditional price-to-income and price-to-rent measures. And housing will begin reasserting itself as the major driver of the economy. Now if Congress will just leave the mortgage interest deduction alone.