2012 Marked the Year of the Housing Recovery: Promising Signs for More Improvement In 2013
The nation’s housing market has certainly come a long way from the depths of the recession. According to the National Association of Realtors® (NAR), in 2008 home sales had fallen nearly 42 percent from their peak level in 2005. Moreover, foreclosure filings had jumped more than 80 percent. But today, the housing market is showing signs of gaining momentum.
As 2012 comes to an end, the number of foreclosures continues to decline and both home prices and sales continue to recover across the country as well as here in Colorado. In fact, in some communities there are not nearly enough homes to meet buyer demand, and it is not unusual to see multiple offers with final sales over the asking price.
NAR has reported that October home sales in the U.S. were 10.9 percent higher than a year ago. This marked the seventh straight month that the nation’s housing market saw improvement year over- year, the first time that’s happened since November 2005–May 2006. Median home prices in the U.S. also rose 11.1 percent from a year ago. And in some of our markets, prices and sales have been even stronger than that.
These statistics do not mean that we are completely out of the woods. The nation’s housing sector still faces some challenges, including a tepid economic recovery, high unemployment levels and the prospect of higher taxes in 2013 if Congress cannot avoid the “fiscal cliff,” and the threat that the mortgage interest deduction could be reduced as part of budget negotiations.
But despite those potential potholes, we appear to be on the road to recovery and many industry analysts believe we will pick up speed in 2013 and beyond. According to NAR Chief Economist Lawrence Yun, the steady housing market recovery is expected to continue over the next few years, barring further tightening of mortgage credit availability or the potential of sharply higher taxes and automatic spending cuts on January 1st if Congress fails to reach a compromise on revenue and expenditures by year-end.
Yun reports that, “Existing-home sales, new-home sales and housing starts are all recording notable gains this year in contrast with suppressed activity in the previous four years, and all of the major home price measures are showing sustained increases.” While mortgage rates have been at historic lows, Yun expects these rates to rise to an average of about 4.0 percent next year and 4.6 percent in 2014.
With rising demand and shrinking inventory, Yun foresees meaningfully higher home prices. He predicts that the national median existing-home price should rise 6 percent to $176,100 for all of 2012, and increase another 5.1 percent in 2013 to $185,200 with a similar increase in 2014.
According to the UCLA Anderson quarterly forecast released earlier this month, the U.S. housing market should be a major driver for the nation’s economy over the next two years – a change from past years when housing trailed other sectors.
UCLA Anderson economists say that the U.S. housing market may have been late to the economic recovery, but it is now taking the lead. “In contrast to the typical business cycle, the recent recovery has been characterized by strength in the back end of the economy,”
UCLA Senior Economist David Shulman said in his essay, “Beyond the Cliff,” discussing the December report. “Now with the recovery more than three years old, the business side of the economy and exports are weakening and housing is gaining strength. In fact, the late arrival of the traditionally early pickup in the housing market has become the leading source of strength.”
With increases in multi-family construction, Shulman said housing starts are expected to increase from 612,000 units in 2011 to 768,000 units this year. In 2013 and 2014, he forecasts increases to 991,000 units and 1.34 million units, respectively. By the end of 2014, Mr. Schulman anticipates that housing starts will run at an annual rate of 1.45 million units.
The UCLA Anderson report and NAR’s forecast are just the latest economic reports predicting continued improvement in the nation’s housing market. An economic report by PNC Financial Services released earlier this month said new home construction will help fuel the next leg of the economic expansion.
“Manufacturing had been leading the recovery due to strong business investment, exports and an improvement in vehicle sales,” the PNC report said. “Manufacturing will continue to expand in the near term, but the industry has moved from leading the overall recovery to keeping pace with it. However, construction will be more of a growth driver in 2013.”
PNC economists said home building is in full recovery as the real estate sector becomes more attractive for builders and consumers.
“Excess housing inventories have been worked off in many parts of the country, and with economic fundamentals improving, housing demand is picking up,” the PNC report said. “Affordability is extremely high given big price declines and record-low mortgage rates. Job gains and gradually expanding access to mortgage credit are also supporting home sales and homebuilding.”
So where does all this leave us? While no one can say for certain what the future holds, most signs point to the fact that things are getting better for the housing market. Interest rates remain near historic lows and home prices have begun rising again. If you’ve been putting off buying a home, you may want to seriously consider jumping into the market in the New Year to take advantage of this great opportunity. My team and I are ready to help you find the home of your dreams or sell your existing home. Just give me a call and we will get started today! – Terry Robinson 303.748.3838