Where the Housing Market Is Now – And Where It’s Going
After the calamity that was the housing market crash of 2007, residential real estate in the U.S. has been on life support.
A historic wave of foreclosures began in 2007 and ravaged the market for four years, peaking in 2011 with a record 3.92 million foreclosures and 1.15 million home repossessions. Prices also plummeted, with the national median home price falling by over 35% from 2006 to 2012.
New home starts fell, causing even more damage to the nation’s GDP, and rental rates – buoyed by increased demand and a lack of qualified homebuyers – skyrocketed.
Where does the market stand now, and where is it going in the near future? While no one has a crystal ball, and while so much depends on the overall health of the economy, an objective analysis of trends and data can paint a projection of the near-term future of the market.
The Market as of First Quarter 2013
The first quarter of 2013 has passed, leaving us with a better picture of the real estate market and its progress since the dark days of two years ago.
Foreclosures Are Falling
Foreclosures pull down the value of nearby homes and also cause a supply glut with discounted homes that causes ripple effects. The fewer foreclosures there are, the better the economy will perform.
From February to January, foreclosures across the country actually increased by 2%. That number, however, is 25% lower than it was a year ago. Banks repossessed 11% fewer homes in February than January and 29% fewer than February, 2012.
The second statistic suggests a growing backlog of foreclosures in certain states with longer foreclosure processes, like California, New York, Florida, and Nevada. Many of these homes will be lost; it is only a question of when.
Home Prices Are Rising
Housing prices – to many, the key metric in regards to market health – are up so far in 2013. They have not decreased on a monthly basis since January, 2012, and are up 6.5% so far this year, according to the FHFA.
Some parts of the country are experiencing better growth than others; the region with the highest yearly increase (14.1%) includes Arizona, Montana, Nevada, and New Mexico. California, Washington, and Oregon as a whole grew by 13.7%.
Housing Starts Are Up
Another key metric – new housing starts – is also positive so far. A new housing start is the official beginning of construction for a new home, which delivers a larger boost to the economy than buying or selling an existing home. According to the Census Bureau, housing starts rose by a staggering 28% from February, 2012 to February, 2013.
That doesn’t mean the market has arrived, of course; the number of housing starts projected for this year is nearly a third of the pace at the market’s peak, in January, 2006.
Where the Real Estate Market Is Going
From all objective metrics, the nation’s housing market is improving, especially when compared to the lows of 2010-2012. Foreclosures are down; housing prices are up; more homes are being sold and built; and borrowing is cheaper than it has ever been.
The market is not out of the woods, however, and it is likely that things will worsen before they improve further.
Foreclosures play a pivotal role in prognosticating the market’s future. A serious backlog of foreclosures and repossessions still exists in many parts of the country. Florida is approving a measure that should speed up its foreclosure process – at one point the slowest in the country – mainly because they have a heavy backlog of homes that need to go to through the system. Many other states are in the same position.
Foreclosure rates for 2013 will probably still be lower than in 2012, but not by much – and there is a chance they could exceed last year’s pace.
Housing prices may be up so far, but the number of underwater homeowners is still far too high for a healthy market. Roughly 20% of homeowners owe more on their loan than the home is worth, stifling home buying.
Plus, economic conditions are still shaky. Unemployment is falling slowly but is still at 7.7%. Wages are stagnant. Consumer and industry sentiment is falling. Additionally, the federal government is cutting spending, which could impact developments further.
The market, as a whole, will likely continue to improve through 2013, and all metrics should be in better shape at the end of this year than they were at the beginning. With that being said, we will experience more foreclosures and lower prices than many anticipate right now. There is still a large amount of discounted homes out there for purchase; until they are gone – and until the economy as a whole gains serious traction – the market’s recovery will be uncertain.
Photo Courtesy Of Simon Campbell
Guest Author Bio
Simon Campbell has spent over 15 years in all the various facets having to do with real estate including sales, purchases, investment and research. His experience also includes commercial and residential property management and even real estate appraisal. He is recognized among his peers as an expert in the real estate field. Now after gaining such a wealth of personal experience, Simon has changed directions and is now sharing his knowledge and experience with others through writing, mentoring and consultation. Check out Simon’s profile on Simon Google+ and also his blog.