Home prices are rising, interest rates are stuck at record lows, employment is improving and the economy is growing - albeit slowly.
That all bodes well for the nation's housing market in 2013.
The New Year's housing market should be even better than 2012, according to Freddie Mac's year-end U.S. Economic and Housing Outlook.
"The last few months have brought a spate of favorable news on the U.S. housing market with construction up, more home sales, and home-value growth turning positive. This has been a big change from a year ago, when some analysts worried that the looming 'shadow inventory' would keep the housing sector mired in an economic depression," said Frank Nothaft, chief economist at Freddie Mac.
"Instead, the housing market is healing, is contributing positively to GDP and is returning to its traditional role of supporting the economic recovery," he added.
Sure, more than three million single-family loans remained at least 90 days delinquent or in the process of foreclosure by the end of September and that will continue to weigh on the market.
However, the number of seriously delinquent loans fell by more than 60,000 this year and improved demand is absorbing distressed sales faster than ever.
CoreLogic says the share of REO sales and short sales in the third quarter were the smallest shares since the third quarter of 2008. Also, housing starts are up and taking in some of the slack in the resale sector and many once underwater homeowners gained enough equity to float over to the move-up market.
So what more's in store for 2013?
"I'll tell you five features of the 2013 housing market that we expect to see," said Nothaft.
- Low mortgage rates
Mortgage rates fell to 65-year lows in 2012 after the Federal Reserve began its third round of quantitative easing (QE3) in September. The Fed plans to continue efforts to keep rates low.
Nothaft says to look for fixed-rate mortgage rates to remain near record lows for the first half of 2013 for both single-family and for apartment-building loans, but rates could rise a bit at the end of the year. Others aren't so sure and say rates should remain where they are and fall even more through 2013.
"Sign me up with those who think that rates are about to fall from ridiculously low to ridiculously lower," says Silver Spring, MD-based mortgage market maven Peter Miller, publisher of the Ourbroker.com network.
- Rising home values
All major house price indexes (HPIs) revealed annual home value gains in 2012. The Federal Housing Finance Agency Purchase-Only HPI was up 4.5 percent and the Freddie Mac HPI was up 4.3 percent.
Look for property values to continue to strengthen in 2013, rising by 2 to 3 percent in 2013, but maybe a lot more in select markets.
Real estate analyst Bruce Norris of the Norris Group in Riverside, CA, has been known to have his finger on the pulse of the California housing market and says the median price in the Golden State will rise by 20 percent in 2013.
"My best guess is that California, we will have significant price inflation. Prices could escalate so strongly that we will think we are in 2004 instead of 2013," said Norris.
Norris' forecast may be conservative.
In November 2012, home prices were up nearly 25 percent from November 2011, according to the California Association of Realtors.
- New households forming
The rate of homeownership has been falling in recent years, but with improvements in the job market, that should change. Job and income gains should facilitate a net growth of 1.20 to 1.25 million households in 2013.
More households will help drive housing starts to an annualized rate of 1 million by the end of the year. Additional households will also reduce vacancy rates.
- Falling vacancy rates
Vacancy rates in both the apartment rental market and the single-family for-sale market have been trending lower for much of the past three years as household formations outpaced new construction.
Through the third quarter 2013, net household formations totaled 1.15 million, but there were only 700,000 newly built homes (rental and for sale). More new households than new homes equals fewer vacancies, a trend expected to continue in 2013.
That's good news for property owners' home values, but not so much for tenants who'll suffer higher rents.
Less refinancing
Refinancing comprises the bulk of the residential mortgage market and that will continue into 2013.
However, 2013 will see less refinancing, because many homeowners are locked in with rates about as low as they can go. If Freddie Mac's forecast holds true, interest rates will be somewhat higher by year's end in 2013.
Published: December 20, 2012
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