My real estate market forecasts are the most widely read articles on MattsMemos.com. Their popularity is certainly not due to profound accuracy; in fact, I’m probably wrong more than I’m right. Nevertheless, it’s been fun for me to take my best-guess and, as it turns out, it’s been fun for my followers to read. You can read prior year’s forecasts here, here, and here. But, you’ll get more from reading the one below which also includes home refinancing, buying, and selling tips. If you like it, share it! If you disagree with my projections, make a comment…I’d love to hear your thoughts on our CRAZY real estate market.
Everyone (including me) predicted mortgage rates would rise slightly through 2012 as the economy slowly recovered and as the presidential election brought some clarity to the fiscal and political direction of our country. We were all wrong. 2012 saw lower rates than ever before, largely due to The Fed’s decision to buy mortgages. When the Fed’s announced they’d steadily purchase billions worth of mortgages until the unemployment rate hits 6.5% (its currently at 7.8%), mortgage rates fell dramatically. Presently, The Fed is buying $3.7 billion in mortgages every day, yet the industry only originates $2.5 billion daily, essentially meaning mortgages are “selling-out.” Simple economics dictate that regardless of if its a mortgage investment or a bunch of bananas, when a product sells out due to high demand, prices rise (just think of skyrocketing prices in New England right now as there isn’t enough supply to meet the demand of frantic buyers preparing for the blizzard!). When the prices of mortgages to investors rise, the rates to borrowers fall. As long as The Fed stays the course on buying every mortgage off the shelf, we will see these low rates remain throughout this year. Currently, 30-year fixed rates are around 3.75%. However, economic conditions around the globe are improving, and with brightening economic forecasts both at home (our real estate rebound will do wonders for America’s economic health) and abroad (many believe the worst of Europe’s fiscal woes are behind them), rates should increase from the record lows we saw last year.
More importantly, accessible programs (like the Home Affordable Refinance Program – HARP) and rising home values (much more on this below) are allowing more folks to refinance as we march through 2013. According to statisticians much smarter than me, 4 million more Americans are eligible to refinance today compared to last year simply because their home is worth more now. If you’ve tried to refinance in the past but hit hurdles due to your home’s value, be sure to check back again.
After 6 years of having the negotiating advantage, home buyers last year suddenly found themselves competing over a short-supply of homes for sale. I foresee this feeding-frenzy dynamic to continue well into 2013…possibly beyond.
Sacramento County home prices rose 20% in 2012, so many sellers are less inclined to put their homes up for sale if they believe their home will continue to be worth more in the near future. Furthermore, there’s much pent-up demand from home buyers, including ones who are now eligible to purchase after a short-sale or foreclosure. Real estate investors also make up a big portion of the home buyer pool as they see big profits in real estate from both a strong rental market and swiftly rising home prices. In conclusion, the imbalance between strong demand and weak supply should continue this year, leading to further steady price increases for sellers and challenging times for buyers.
Home sellers are finally back in the driver’s seat, and likely will remain there through 2013. Due to rising home values, many once upside-down homeowners are discovering they can now sell and break-even. “Traditional” sales by sellers with equity now comprise over 60% of home sales, compared to only 34% from just two years ago. Furthermore, bank-owned sales are down nearly 90% from 2010, thus showing signs banks are foreclosing on and, more importantly, re-selling significantly fewer homes.
In my opinion, the fear of banks’ “shadow inventory” is grossly exaggerated as many banks are trending to renting out their foreclosed homes or selling homes in bulk to investors who also turn many of the homes to rental properties (this recent Bloomberg article discusses this trend in detail). Bottom line, 2013 will afford many home owners to sell after years of riding out the market, and to command higher prices than the last neighborhood home sale before them.
To wrap up, 2013 will see rising home prices, stingy levels of inventory, and slightly elevated interest rates. It should be a very healthy year for real estate, and likely be the catalyst for economic growth in many other sectors. The Blue Waters Group is honored to stand alongside you in your home buying, selling, and refinance transactions in the year ahead and beyond.
As always, thank you for reading.
-Matt Sundermier, Mortgage Broker & Real Estate Agent
Owner/Broker of The Blue Waters Group
Two-Year Winner of Five-Star Awards as featured in Sacramento Magazine