2013: Could You Be Priced Out of the Housing Market?

Realtors were hopeful that 2013 would begin on a high note with an increase in sales and listings, and boy have we seen them recently! Perhaps due to the avoidance of the fiscal cliff or building off the momentum of the past few months, the housing market is coming back well ahead of some economist’s estimates. While this is good news for realtors and those looking to list, could some buyers actually be priced out of the market if they wait too long?

While the recent rise in the market may seem too fresh and unstable, some markets in the U.S. are seeing huge recoveries right now. The Phoenix area saw an increase of sales at 21.7% according to S&P Case-Schiller Data last month, with hard hit areas like Detroit, Miami, and San Francisco not far behind. The result has been a sharp incline in prices for those areas, as home owners discover the supply and demand to be in their favor. Sadly this means that some potential home buyers may find themselves unable to afford homes that they may have been able to only a few short months ago. 

J.P. Morgan is now forecasting overall increases of 3-4% in home prices for 2013, but like the above cities, many areas are already seeing these increases before the spring selling season even begins. This winter has been hot for home sales as many buyers begin to see the signs that historically low housing prices are set to take off this year. 

Not all cities are seeing the rapid growth of Phoenix or Miami though; The same index saw a small drop in the New York and Chicago areas. Boston, and our friends in Cleveland only saw gains around 2%, meaning buyers are much less likely to make the jump into something new right now.  

The biggest plus right now for people who are unsure about purchasing this year: You guessed it, those great rates on mortgages, which financial analysts are predicting will stick around for almost all of 2013. The 30-year fixed mortgage rate is expected to remain under 4% for most of the year, but could move a little lower or higher depending on market conditions. 

Real Estate site Trulia is saying that the market is “51% back to normal” for the month of November, based on a 6% increase in existing-home sales. The wildcard for the 2013 housing market will be the so-called “shadow inventory” of distressed homes that number in the 2.3 million and at the current pace of the market even out to a 7 month supply. Analysts will be watching to see how quickly these homes sell and for what prices to determine the rise in housing prices in the coming months. 

New sellers listing their homes and builders adding to the supply will also have an impact on the market. While we’re seeing a little bit of an uptick in listings after the first of the month, we really won’t know what’s going to happen until we’re well into spring. If there is an increase, prices may not rise as sharply and homes may remain more affordable. Not only will buyers find it easier to afford a new home, but bidding wars will be easier to avoid. 

Other factors affecting the market include the fear over cutting of the mortgage-interest tax deduction, which survived the fiscal cliff talks but may be up for grabs again when congress begins talking debt ceiling towards the end of the month. Many lawmakers support it’s cut, which could raise the overall cost of home ownership. Another point is the low vacancy/high prices associated with renting right now, leading several potential buyer to consider home ownership more seriously.  

No matter the conditions or your own budget, there will always be wonderful homes in your area that could be the perfect match with the help of the right realtor. 

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The Fiscal Cliff Deal : What Homeowners Need to Know

Thankfully, 2013 did not begin on the sour note it could have: a deal was reached by Congress in the wee hours of January 1^st to prevent potential economic disaster and steered us away from the “fiscal cliff” you’ve no doubt heard so much about in the past month. While we can debate the pros and cons of this deal no doubt, most home owners, sellers, and potential buyers have just one question: How does this impact me?  

Depending on where you fall on the earning scale, the fiscal cliff deal was either good or bad for you; all those making under $400,000 individually ($450,000 total household) will keep the tax rates they now enjoy. If you make over this amount, your taxes are set to increase to the same rate they were back in 2003 at 39.6%, up from the 35% they were previously. Capital gains taxes will also go up from 15% to 20% for the same income bracket. While this doesn’t directly affect the housing market, you can bet that people feeling the financial pinch will be more reluctant to make big property purchases. 

However, the great thing about the fiscal cliff deal is that two major housing related tax provisions were left untouched: The mortgage interest deduction, and an extension on the tax relief for mortgage debt forgiveness. These two provisions are key in keeping homeowners from going into foreclosure and in their current homes. The deal also allows borrowers to deduct the amount they pay for private mortgage insurance, another great incentive when it comes to buying a new home.

Take a look at the details of the deal:

Homeowner Tax Items

•             Extends through the end of 2013 mortgage debt tax relief

o             The legislation extends the tax exclusion for cancelled or forgiven principal residence debt, enabling short sales and reducing downward pressure on housing prices.

o             Also enables mitigation efforts via government and lenders

•             Deduction for mortgage insurance extended through the end of 2012

o             The deduction remains phased-out ratably by 10% for each $1,000 by which the taxpayer’s AGI exceeds $100,000, with complete phase-out at $110,000

o             Extending the deduction reduces the cost of homeownership for those using PMI, FHA, or VA mortgage insurance, particularly first-time buyers

•             Extends the section 25C energy-efficient tax credit for existing homes through end of 2013

o             Tax credit is a key tool for the remodeling community

o             Extends the credit at the $500 cap level, as was the case in 2011

•             Reinstates the Pease/PEP phase-outs for deductions

o             For married taxpayers above $300,000 ($250,000 single), the Pease limitation reduces total itemized deductions by 3% for the dollar amount of AGI above the thresholds

o             For example, a married couple at $350,000 is $50,000 above the limit, and must reduce the Schedule A deduction total by $50,000 times 3% or $1,500, increasing their tax by approximately $300.

o             No more than 20% of the phase-out is attributable to the MID and the Pease rule will affect a very small number of current MID beneficiaries

 

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Looking Ahead to 2013: The Housing Market

Home owners ready to sell and potential buyers have had their ears to the ground for the past couple years, keeping track of the real estate market and what it could mean for their future. It’s been a long hard road from 2008, but we’re finally seeing that light at the end of the tunnel, and will continue to in 2013. If you’re ready to list your home or are looking to purchase one, you may want to consider doing so in the next year after reviewing these trends set to take off in 2013. 

1.        The Return of Home Value

When the real estate bubble burst a few years ago, many home owners were shocked to find their home values had plummeted. Selling the homes that they had spent so much time, money, and effort in to create an investment just wasn’t feasible in this climate. However, that is quickly changing; real estate site Trulia is reporting a 3.8% spike in home sale prices in just the past month alone. It’s looking more and more like 2012 was the year we finally touched bottom, meaning 2013 will be the year we see a substantial turn around. Even with prices set to rise in the coming year, it’s still a great time for buyers to get in there and purchase property, as the record-low interest rates on home loans are set to continue. Interest rates for December 2012 fell to an average of 3.68% compared to 4.45% in 2011 and 4.69% in 2010. 2013 is going to be that sweet spot where home owners begin to see a return on their investments, while buyers can still snatch up real estate they love for prices they may not see again in their lifetimes. 

2.       New Builds Continue

2012 saw a return of construction and new builds to the real estate market that had been lacking in years previously. With the ultra-low prices available to those looking to buy, as well as current owners understandably unwilling to sell due to home value, the real estate market became thinner than it had before. The result: buyers turned to home builders to craft their dream homes. With that boost, builders are now attempting to get back in the game by upping their constructions, giving potential buyers more options in their search for the perfect home. Those looking to move into something new this coming year may want to explore the options of having a home custom built, or of looking for a new build since the market will continue to be inundated with them as great options. Building permits were at their highest levels since 2008 this year, which is a great indicator that more builds are coming soon. 

3.       First Time Buyers

The recent plunge in the economy has hit certain groups harder than others; this is especially true for the 25-35 year old age range that have seen job prospects diminish greatly and their student loan debts grow. The result has been a giant downturn in first time buyers who would otherwise be snapping up real estate and establishing families now. This age group suffered from a 9.2% jobless rate in 2011, compared to 8.7% for other working aged groups at the same time. However, recently this jobless rate has fallen substantially to 7.9%, only .2% more than the national average currently. This means that more and more young adults that have been chomping at the bit to get into a new home will potentially be able to in the coming year. This is great news for home sellers anxious to sell and move up to a new home themselves. When the first time buyers return to the real estate market, the entire system benefits. 

4.       Decline in Delinquencies

It’s been a rough couple of years for many homeowners who have found themselves underwater on mortgages due to the drop in the economy. When things began to slow in 2008, many owners became delinquent on mortgage payments, a clear precursor to foreclosure.  Delinquencies peaked in the final 3 months of 2009, averaging 6.89%; to compare, delinquencies were only 1.49% in 2006 before the beginning of the recession. The good news is that the delinquencies have been steadily dropping since 2012 and are expected to continue their decline well into 2013. Currently they stand at 5.41%, and are expected to drop another 2% in the coming year. The silver lining to this is that the vast majority of delinquencies right now are made up of old debts that are a year or more behind; people are not going into foreclosure or becoming delinquent anywhere near the rate that they once were a few years ago. We are finally seeing a stabilization of the housing market and a possible end to ramped foreclosures. 

A Word of Caution

Although there is no denying that the housing market has been making a recovery in recent months and has the potential to grow even more, there is one thing that stands between us and a true full recovery. The culprit? You guessed it: The dreaded fiscal cliff. With much of the United States’ eyes turned to Washington, it’s no surprise that many people who would otherwise be taking a chance on buying or selling are waiting to see where the cards fall. Just the threat of possible economic repercussions has the potential to upset the recovery underway. Among possible casualties of the fiscal cliff debates are Mortgage Interest Deductions, The Mortgage Forgiveness Debt Relief Act of 2007, and the beginning of the Medicare Real Estate Surtax used to fund the new healthcare system.  

Although we’re not quite where we were pre-recession yet, 2012 has given us a lot to be thankful for, and 2013 has the potential to be even better. No matter the problems or obstacles presented to the housing market, there will always be great realtors there to help those in need navigate home sales and purchases, with your benefits in mind. Here’s to a GREAT 2013!