Forbes.com published an article recently entitled “Five Things Consumers Should Expect From The Housing Market In 2013“. I’d like to highlight and summarize some of the important points in this article. It should be noted, however, that when media sources quote Zillow, I always tell my clients to take Zillow with a grain of salt. While Zillow is a great resource for many things, I find that Zillow’s “Zestimates” are highly inaccurate and if you want the value of your home, you should always ask a licensed Realtor.
In 2012, the national housing market finally turned a corner. We’ve now experienced 13 straight months of home value appreciation. Sales were up significantly over 2011 as buyers returned to the market, boosting demand. In Tampa Bay, we went from 7.3 months of inventory last year all the way down to 3.2 months of inventory at the same time this year. Less than 6 months of inventory is considered a Seller’s Market. Our average sale price jumped $50,000 on average over last year’s figures.
So what will 2013 have in store? Here are five things consumers can expect to see in the housing market next year:
1. Up, Up and Away
- The national housing market hit bottom in October 2011, and home values have since risen 5.3 percent from that trough. The most recent Zillow Home Value Forecast calls for 2.5 percent appreciation nationwide from November 2012 to November 2013.
- According to a recent Zillow survey of more than 100 economists and analysts, respondents predicted home values (based on the S&P/Case-Shiller U.S. National Home Price Index) to rise 3.1 percent in 2013, on average.
Bottom Line: 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. (Yes, we are in one in Tampa Bay). 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.
2. Real Estate Is Local Again
- According to the Zillow Breakeven Horizon, buying beats renting when staying in the home for three years or more in roughly 60 percent of U.S. metros. The areas where it might make more sense to buy (if you’re planning on staying for three-plus years) are clustered in the Southwest and Southeast. If you won’t be staying put for at least a few years, consider renting in the Northeast, where buying often doesn’t make more financial sense until five years or more.
Bottom Line: The housing market recovery has remained true to the old real estate axiom of “location, location, location.” How your local market 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. Arming yourself with timely and comprehensive local market information is good advice at any time, but will be even more important in 2013 as buyers continue to seek bargains and sellers look to maximize returns.
3. Coming Up for Air
- In the third quarter of 2012, the percentage of homeowners with a mortgage in negative equity – or “underwater,” owing more on their mortgage than their home was worth – fell below 30 percent for the first time since Zillow began tracking that data using an improved methodology in early 2011.
- Still, 28.2 percent of homeowners with a mortgage remain underwater. Because underwater owners have a far more difficult time selling their home, a large number of homes that otherwise might end up on the market aren’t getting listed. As a result, inventory in many areas is incredibly tight, leaving buyers to fight it out amongst themselves, which in turn can help drive up prices. This, among other factors, has led to tight inventory in many of the hardest-hit cities around the country.
Bottom Line: As home values continue their upward march in 2013, more homeowners currently trapped underwater will begin to surface. This will be good for buyers exhausted by limited inventory and intense competition in markets such as Phoenix and Miami, but it will also have the effect of cooling price increases. As a result, in 2013, we predict home value appreciation in many areas will look more like a series of steps, characterized by cycles of price spikes and plateaus. Price spikes will free some homeowners from negative equity, allowing them to sell, thereby easing supply constraints and dampening prices until the cycle is repeated.
4. Historically Affordable
- Mortgage interest rates have been hovering at or near historic lows for the past year, and the Federal Reserve has taken concrete steps to ensure they stay low for at least the foreseeable future.
- At the same time, home values – while recovering nicely – still have a long way to go to reach their pre-bubble levels. Overall, national home values in November were still down 19.4 percent from their peak in May 2007, according to Zillow.
Bottom Line: Between 1985 and 2000, Americans spent, on average, about 20 percent of their household income on mortgage payments. That percentage increased to more than 24 percent by 2006, before falling to just 13 percent by the second quarter of 2012. If you can qualify for a home loan, the combination of low rates and low prices means your home-buying dollar will continue to take you farther in 2013 than in recent years, even for buyers on modest budgets.
5. Mortgage Interest Deducted?
- Changes to the mortgage interest deduction (MID) may be a key element of any “grand bargain” reached by politicians in order to avert the year-end fiscal cliff. If adopted, any measure to limit or repeal the MID will result in some home price impacts over time and by market segment.
- Home values at the high end of the market will likely be more negatively impacted by MID changes than home values overall, according to a recent Zillow survey of economists. For example, in the event that the maximum MID-eligible mortgage amount is reduced from $1 million to $500,000 and the deduction allowance for second homes is eliminated, the majority of respondents said they expect high-end home prices to fall while U.S. home prices overall experience little or no price impact.
Bottom Line: Real estate lobbying groups have long fought against changes to tax rules allowing for the deduction of mortgage interest, arguing that any changes will impact or eliminate some of the historic financial advantages of owning a home. But unless you’re buying a proportionally more expensive home or are buying in a more expensive area, the impacts of MID changes will likely be muted. The decision to buy or sell a home is highly personal and dependent on a number of factors, only one of which is potential tax implications. In 2013, make your decision to buy or sell based on your own informed opinion and your unique situation. (Note, this article was written 12/26/12 and the MID remains in tact after the Fiscal Cliff bill, nothing to worry about here).
The Moral of the Story
If you are like me and don’t totally trust Zillow’s numbers – there’s another article today that released numbers from CoreLogic – who predict a 6% increase in home prices in 2013, after an amazing 7.5% increase in 2012 – the largest home price increase since 2006. So if you’ve been sitting on the fence, thinking about selling your home but waiting for prices to come up – guess what – they are up! Call a top licensed Realtor to find out what your home is really worth in today’s market. There isn’t much inventory out there and you might just find yourself with a buyer’s bidding war on your hands!
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