Is Housing Really Back?
Hyperventilation over the housing market recovery is reaching gale force. National news outlets are quoting some experts as saying that housing will lead economic growth this year.
Pass the paper bags. The truth is that a consistent rise in home values in 2012—of 5.9% according to Zillow, and 5.5% according to the Case-Shiller Index—falls far short of recapturing a 30% drop in values since 2006.
This year, several factors will keep home values in check:
• Negative equity: About a quarter of homeowners owe more than their home is worth. And that’s before the typical 6% commission charged by real estate agents.
• The long wait: Millions of homeowners are waiting for prices to rise high enough to afford the down payment on a new house. Those homeowners are in for a long wait. Meanwhile, savings are crimped due to rising property taxes and maintenance costs.
• Uncertainty over the mortgage deduction: New Congress, same old debt problems. Several politicians are already pledging to re-open discussion over minimizing or eliminating the deduction. Doing so would undermine home sale prices, at least in the short term.
• Evolving mortgage lending rules: It seems like common sense, but the Consumer Financial Protection Board just unveiled new rules stipulating that lenders must be sure borrowers can actually repay loans.
• New rules: Added regulations for mortgage lenders will doubtless add time, fees, and some confusion as they become integrated into lending practices. (The rules become fully effective in 2014.) Some potential buyers will steer clear of the market until everything is clarified.
As always, conditions vary widely by market. Phoenix, for example, is seeing a big bounce in home values, but from one of the worst crashes. Keep track of current market values by subscribing to the news feed from your local multiple listing service—and don’t be distracted by overblown national predictions.
For more on real estate trends, consider:
Will 2013 Values Support Improvements?
5 Market Trends to Cash In On This Year
How To: Calculate the True Cost of Homeownership