Dec 27, 2011
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I do think that we can expect a gradual economic recovery to move the housing market a few steps back toward normal in 2012….
Before getting into the predictions, I must be upfront with what’s being assumed. After 14 months of job gains, we all should expect the economy to continue its slow but determined recovery. I don’t do my own macroeconomic forecasts, but every single one of the fifty-ish economic forecasters surveyed by the Wall Street Journal expects the economy to grow throughout 2012, and that makes sense to me.
Here’s what to expect in 2012 and what it means for YOU:
Delinquencies will go down, but foreclosures will go up.
Fewer borrowers will fall behind on their payments next year, thanks to the strengthening economy and refinancing. The share of delinquent borrowers is already down more than a quarter from the peak a couple of years ago. But many borrowers who fell behind on their payments during the housing crisis are still in limbo: last year’s robo-signing controversy threw a wrench in the gears of the foreclosure process. That means that some delinquent loans haven’t yet gone through the foreclosure process. Once a settlement is reached with banks over robo-signing, we’ll see a new wave of foreclosures and foreclosure sales.
What it means for YOU: Despite the decline in delinquencies, the wave of foreclosures will hurt. New foreclosures will depress prices for several reasons – foreclosed homes are often sold at a discount and used as comps for non-distressed homes; vacant homes bring down the value of their neighbors; and high foreclosures are the worst thing for consumer confidence in the housing market. That will hurt seller motivation even more than buyer motivation since lower prices will mean deals for some buyers. Sellers must have competitive pricing strategies to catch buyers attention in 2012 and understand the depressed prices to come if they live in a high-foreclosure area.
Rents will rise – which is a bitter-sweet
With fewer people buying homes and more people losing their homes to foreclosures, rental demand is increasing. High rents will hold back economic growth if businesses can’t pay workers enough to have a roof over their heads. Squeezed city-dwellers won’t get relief until late 2012: that’s when a wave of new multi-unit construction projects that started late this year will be completed and available for rent. To tackle growth-killing high living costs in the priciest cities head on, local governments need to get rid of height restrictions and arduous permitting processes, which hold back urban construction and push development to the suburbs.
What it means for YOU: Rising rents and falling prices make buying a great deal – but only for prospective buyers who can afford the down payment and qualify for a mortgage. This also creates an amazing investment opportunity for positive cash flowing rentals. You will see plenty of inventory and low prices in 2012.
Mortgage rates will inch up – which will probably be a good thing.
A stronger economy will push Treasury bonds and mortgage rates up because inflation becomes more likely and investors demand higher rates to hold bonds. But lots of factors can push rates up or down. For the housing market, which direction rates go is less important than why. Gradual economic recovery is good news for the housing market even if it means higher mortgage rates – because higher mortgage rates should go hand-in-hand with greater housing demand.
What it means for YOU: Higher mortgage rates mean higher monthly payments for buyers, but a stronger economy means that buyers will be better able to afford those rates. Higher rates probably won’t hold back buyers much: rates are only one of many factors that enter into the cost of buying a home, and for many buyers the down payment is a much bigger barrier to homeownership than the monthly payments. Also, buyers need to be reminded that homeownership has other costs on top of the monthly mortgage payment, like insurance and maintenance, which can add half again as much to the cost of owning a home. It’s important for buyers to understand and prepare for the overall costs and benefits of homeownership, not just the monthly mortgage payment.
Government will sit on its hands.
In election years, politicians don’t take risks: they’re more talk and less action, so don’t expect any bold housing policy reforms next year. What’s more, with the housing market now recovering, we’re not in enough of a crisis to force political opponents together. Instead, in 2012 we’ll see the effects of modest housing proposals from this year: easier refinancing under the expanded HARP program, and more government-owned homes coming to market for sale or rent. But the bitter debate in Washington over the budget deficit and debt will continue.
What it means for YOU: No news may be good news: I don’t expect major changes in policy that will upend the housing market. But government is slowly scaling back support for housing, both to encourage the private sector to come back in and also to help deal with the federal budget deficit. Late this year we saw increased fees on Fannie and Freddie to help fund the payroll tax cut, lower conforming loan limits, and proposals to scale back mortgage interest deduction. It’s important for buyers to understand what these changes means for their mortgage costs, both before and after taxes.
Smart cities are hot.
In 2012, the local housing markets that will enjoy rising prices, new construction or both, are those that start the year with stronger job growth and fewer empty homes holding back the market. My top five cities to watch are Austin TX, Houston TX, San Jose CA, the Boston suburbs, and Rochester NY. Most of these cities have strong high-tech industries or high-skill workforces. During the housing boom, the go-go cities tended to be lower-skill, lower-education metros. But in 2012, smart is hot.
What it means to YOU: All markets are local. Even though the housing bubble and bust affected nearly all markets, each local market is recovering – or not – at its own pace. National indicators are helpful in understanding where the market is going overall, but buyers and sellers need to understand what’s happening in your local market – which could be very different from the national picture.
Thanks to Jed Kolko contribution to this article, to see full article from Jed please visit, http://pro.truliablog.com/tools-trends/trulia’s-real-estate-agent-crystal-ball-for-2012/
Christopher R. Rodriguez
Maximum Mortgage & Real Estate Inc.
DRE Lic# 01756431 NMLS 267339
707 Mission Ave
Oceanside Ca 92054
Cell (760) 213-6214