More Robust Housing Recovery Forecast in 2013

It’s time once again to gaze deeply into our crystal ball to predict what the New Year may bring to our cherished housing industry.

Of course, everything hinges on whether we all find ourselves going over a Fiscal Cliff, but we’re not going to touch that red hot iron for now, we’ll save that for later if Congress and the President can’t agree on things.

Meanwhile, we’re devoting this entire newsletter to looking ahead, and hopefully assuming we won’t go over that cliff, so let’s get started…

Year-end reports and forecasts for the New Year are rolling in with ever more positive numbers for the housing recovery to continue.

November’s existing home sales rose 5.9 percent over October and are 14.5 percent higher than sales in November 2011, according to the National Association of Realtors (NAR). NAR says existing home sales are at the highest level they’ve been since November, 2009.

The national median existing-home price for all housing types was $180,600 in November, up 10.1 percent from November 2011 and the ninth consecutive monthly year-over-year price gain, which last occurred from September 2005 to May 2006 – during boom times.

In the new home sector, builders are puffing up with confidence. The NAHB/Wells Fargo Housing Market Index (HMI), which measures builder confidence in the single-family housing market, has posted gains for eight consecutive months and now stands at a level of 47.

That’s near the midpoint of 50, where an equal numbers of builders view the market as good or bad. The HMI has not been above 50 since April of 2006.

Growing households are also boosting confidence. In the early 2000s, America was generating 1.4 million new households every year. The bust cut that by about two-thirds to 500,000. Right now, new households are formed at nearly 900,000 per year, according to NAHB.

Freddie Mac, however, recently released a forecast that projected household net growth at 1.20 to 1.25 million in 2013.

A segment of renters bracing to take the homeownership plunge are adding to the rosy 2013 forecast. More than one in three of today’s renters, 31 percent, plan to buy a home in the next two years, a 9-point increase from 22 percent in January 2011, according to Trulia’s American Dream survey.

Near record low interest rates shouldn’t hurt the recovery…

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Mortgage Rates Start 2013 Near Record Lows

Fixed-rate mortgages ended 2012 by hovering near record-breaking lows and keeping home buyer affordability high, Freddie Mac reports in its weekly mortgage market survey.

“The 30-year fixed-rate mortgage averaged 3.66 percent for 2012, the lowest annual average in at least 65 years,” says Frank Nothaft, Freddie Mac’s chief economist. “Rates on 30-year fixed mortgages were nearly 0.6 percentage points below that of the beginning of the year, which translates into an interest payment savings of nearly $98,600 over the life of a $200,000 loan. Moreover, opting for a 15-year fixed mortgage at today’s rates, a home owner could save an additional $138,400 in interest payments.”

Nationwide, the average 30-year fixed rate mortgage rate is starting 2013 at 3.35 percent. Last year at this time, 30-year rates were 3.95 percent. 15-year fixed rates are starting the new year at or around 2.65 percent, compared to a year ago at 3.24 percent. 1-year and 5-year adjustable-rate mortgages are also starting the new year below last year’s levels.

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Home Prices Projected to Continue Increasing in 2013

More evidence that the housing market is trying to dig out of the doldrums and set it sites on recovery came out with a panel of 105 professional forecasters projecting home prices will continue to increase in 2013 rising 3.1 percent for the year, according to the December 2012 Zillow Home Price Expectations Survey.

The most optimistic group of forecasters predicted an average increase of 6.3 percent in home prices for 2012. The most pessimistic predicted an average increase of 3 percent for 2012.

The most optimistic group for 2013 home prices predicted an average increase of 4.9 percent and the most pessimistic an average increase of 0.8 percent. There is much concern about a negative impact on the housing market recovery as a result of changes to the mortgage interest deduction (MID), if made.

Most of the forecasters feel that changes to the MID would have almost no impact on overall home prices in the U.S. and would instead just impact high-priced homes.

If the (MID) eligible mortgage is reduced to $500,000 and 2nd home deductions are eliminated, 55 percent of the respondents felt this would have “little to no near-term impact on overall home prices.”

If the MID is eliminated entirely over a period of several years, then the biggest negative impact on the market is expected by the panel, but even then just on high-end home prices with 70 percent of respondents saying they would not expect those home prices to fall moderately or significantly however that there would be “no overall impact” on U.S. home prices as a whole if that were to happen.