Housing Next Year: Prices Will Rise

Home sales
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Home prices will continue to rise, anywhere from 5 to 7 percent in 2013 from 2012.

These prices will be driven by continued competition among investors in the distressed market, as well as a return to the market of organic move-up buyers. A lack of supply in some local markets could push prices there even higher, but the concern is that prices would rise faster than incomes, which could leave some potential buyers on the sidelines.

Mortgage availability will be further curtailed by new regulations coming out of Dodd-Frank.

Rules governing risk retention and a borrower's ability to repay a loan have yet to be released, but mortgage bankers are already warning they could make loans more expensive. Mortgage rates will likely rise off their historic lows, but not significantly.

Apartment rents will stay elevated and vacancies low despite the improvement in the housing market.

First-time home buyers are still having trouble returning to the home buying market, despite rising household formation. With lenders requiring higher down payments and complete documentation, these buyers who usually make up over 40 percent of the market are at barely one third of home sales. We will only see the tide turner with far more robust job creation.

Mortgage delinquencies and foreclosures will remain elevated, but continued principal reduction modifications as well as a high level of short sales will alleviate much of the distress.

Foreclosure sales will continue, but the banks are unlikely to flood the market with bank-owned properties, as they have no desire to put downward pressure on prices.

As home prices continue to rise, more borrowers will come up from underwater.

This gain in home equity will help to fuel the renovation market and benefit remodeling retailers like Home Depot, Lowes and Masco.

***Enormous caveat: If we go over the fiscal cliff, these predictions are all null and void.


Looking ahead to 2014



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