BY JR DIAMOND – House prices in the United States have moved upwards in the latter half of 2012 even as prices of homes across the world continue to fall. After four years of falling prices, demand has increased, translating into more home sales—home prices across the country increased by nearly 5 percent. As a result, foreclosures have been declining and construction activity has been on the rise. This does not mean America has a strong economy; Florida and Texas are doing well while states such as New York, Illinois, and California are facing bankruptcy. The unemployment rate is also terribly high and many experts say America’s economy could be booming now with just a few simple reforms. The economy is only growing at about 1.5% which is an anemic GDP growth rate.
The U.S. Fed has not changed the key rate for four years now and it is expected to hold steady at 0.13 percent. Sales of existing homes and condos touched 4.75 million and in 2013, it is expected to touch 5.1 million.
Positives and Negatives
The mortgage relief plan announced by President Obama in late 2011 has helped the economy recover slightly and reenergize the housing sector to a small extent but other laws and regulations are holding the American economy down. Following in the footsteps of the President, the Federal Reserve Board announced in September 2012 that every month it will buy mortgage-backed securities to the tune of $40 billion. These measures seem to have had the desired effect and the question now is whether this trend will sustain in 2013.
There is an increase in rental prices compared to house prices. Despite this, rental vacancies are falling which hints at a possibility of a market recovery in the long term. Many home renters wish to turn into homeowners, thus propping up the market.
Another reason for cheer is the stabilization seen in the residential real estate delinquency rate in the penultimate quarter of 2012. An astounding 42 states have showed a decline in the delinquency rate during the period. Will employers resume hiring in 2013 so America can move passed the Congressional mismanagement of Fannie Mae and Freddie Mac several years ago and this housing debacle? Will America face blistering tax increases and will more job killing regulations be presented to American businesses? Will struggling states and cities in America balance their budgets? All this stuff matters and these factors impact every one of us, housing prices, and the economy overall.
Some industry observers are cautiously optimistic. James McElroy, for instance, is a real estate credit consultant with rent to own homes listing service HomeStarSearch. His tenure in the industry lends him insight to ground level happenings. He believes that positive vibes could drift into 2013 and get reinforced in the latter half of the year. Home prices are predicted to rise by about 1 percent in the first quarter of 2013 and touch 3.14 percent by the second quarter. This is assuming the “fiscal cliff” does not become a reality though.
“There’s a lot of uncertainty,” he says, “That’s why, for instance, we’ve seen a surge in rent to own home ownership. People simply want to constantly re-evaluate their situations…I think if we can emerge rom the fiscal cliff, conditions will be a whole lot more favorable. But, at this point, that’s still making a lot of assumptions.”
Attention: Buyers and Sellers
All signs point to the possibility of a balance in the buyer-seller equation in 2013. Homes in certain specific cities such as Phoenix and San Francisco are selling fast but at appropriate prices unlike they did before the housing bubble popped. Arizona’s economy has remained steady and Phoenix is the largest city by far in this state. Phoenix overbuilt and with the abundance of homes on the market, there are many outstanding home real estate deals in this region.
sellers must price their property right and offer superior importance to the appraisal than they did before. The appraiser thus becomes the pivotal character in the buying and selling process. This makes it crucial to have all the correct information ready when the appraiser asks for it. For buyers, obtaining a mortgage will be as hard as ever because the standards are now higher to obtain these loans. Next year will not be a time for casual house shopping and they will have to be prepared to make an offer on short notice.
An air of optimism surrounds the real estate market and the U.S. economy, but only to a few. A reality check, throws up some challenges that will have to be faced and overcome before the winds of stability blow into next year. Tax cuts introduced by the Bush administration will expire in 2013 (hence tax increases) and combined with automatic spending reductions, could be the death knell for the already sluggish GDP growth rate. This harkens back to the fiscal cliff comment but America needs to spend less according to many financial professionals so half of this is actually positive. Moreover, America’s debt continues to increase and with higher taxes looming, these are not bright times for America.
If you do happen to find yourself in a sweet spot though, there are some housing deals that look mighty tempting. This is still a buyer’s market.
JD Diamond is an avid writer covering topics in rent to own home ownership, real estate, personal finance and entrepreneurship among others. He enjoys exploring topics from a diverse, insightful perspective.