What's Next For the Housing Market?
Interest Rates Are Expected to Stay Low
In September the Federal Reserve announced that it intends to keep the federal funds rate at zero to one-quarter percent through the middle of 2015.
If Mitt Romney had won the election it's likely that he would have replaced Ben Bernanke with a different chairman of the Federal Reserve. With Bernanke now scheduled to stay on at least through early 2014, mortgage rates are expected to stay relatively low for quite a while.
As of last Friday, the average rate for a 30-year fixed mortgage was 3.41 percent, according to BankRate.com.
The Housing Market Is Likely to Gain Strength
No one knows for sure how the housing market will fare next year (and everything is subject to the economy not tumbling over a fiscal cliff in January), but a number of indicators point to the prospect of a healthy 2013.
- Increased household formation. More people who moved in with their parents are finding jobs and leaving home. (Needless to say, this could also lead to a spike in champagne prices as parents celebrate.)
- Higher consumer confidence. The November consumer sentiment survey came in at 84.9 percent, better than predicted and the highest level since July of 2007.
- A (slowly) improving economy. Most people need a job in order to purchase a home, and employment numbers have been on the mend.
- Healthy demand. Historically low interest rates and increasing evidence that home prices have turned the corner in most areas are encouraging home buyers to enter the market.
Obtaining a Mortgage Will Get Trickier for Some
The 2010 Dodd-Frank Act contains all kinds of mortgage lending regulations set to begin in late January 2013. Romney had stated that he wanted to repeal the act, but now the rules will probably go into effect as scheduled.
The problem is, no one seems to know yet exactly what those will be!
The legislation is currently under review, and two terms that remain to be fully defined are "qualified mortgage" and "qualified residential mortgage" (confusingly, these are two different things). Dodd-Frank puts lenders at greater risk if their borrowers or loans are not "qualified," so the final definition of those two terms is going to largely determine who will be able to get mortgages at competitive rates in 2013.
More People Will Be Able to List Their Homes
Mark Fleming, chief economist for CoreLogic, said in a recent interview that national home price improvement "continues to outpace our expectations." According to CoreLogic, home prices in the U.S. rose five percent year-to-year in September 2012, the biggest increase since July 2006.
As prices rise, more and more would-be sellers whose homes had been underwater will finally be able to list them for sale. Some of the hardest-hit areas are now seeing the greatest price appreciation, as shown by the numbers below.
Year-to-year price increases in the third quarter of 2012:
- Phoenix, AZ area: + 34.9 percent
- San Francisco, CA area: + 15.5 percent
- Cape Coral, FL area: + 27.6 percent
- Reno, NV area: + 13.5 percent
- Northeast: - 0.3 percent
- Midwest: + 4.2 percent
- South: + 5.7 percent
- West: + 20.2 percent
Data from the National Association of REALTORS«.
The Fiscal Cliff (There's Always Something)
You've heard all about it by now. If our politicians don't reach some kind of agreement by the end of the year, the U.S. economy could go over a fiscal cliff and jump-start another recession.
Interestingly, some experts point out that over the longer term this would probably result in a comparatively stronger economy by greatly reducing the deficit, but the short-term consequences would be huge: over nine percent unemployment by the end of 2013, according to the Congressional Budget Office.
One of the fiscal cliff-related items likely to affect housing would be the end of the tax exemption for mortgage debt forgiveness, meaning that homeowners who do short sales would be taxed on the amount of debt forgiven by the lender.
There's massive incentive for both parties to reach a resolution and avoid the fiscal cliff outcome, so let's hope they come up with something brilliant in the next six weeks. (No, that was not a joke. :)
Are Your Smoke Detectors Chirping?
Do you remember the last time you replaced the batteries in your smoke and carbon monoxide detectors? If it has been over six months (or if you can't remember), it's a great idea to be on the safe side and replace the batteries with new ones, even if the alarms are not chirping yet.
A good rule of thumb is to replace the batteries twice a year, every time Daylight Saving Time clock changes roll around.
Are you planning to buy or sell a home, or do you know someone who is? Please call or email me - I'm never too busy to help you and the people you care about with real estate.
(What the lawyers make us say: The information in this newsletter is deemed reliable but not guaranteed. Please always consult a qualified expert before making decisions based on this content. Nothing in this article is meant to be taken as expert legal, financial, or medical advice.)