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Three Reasons to Be Optimistic About Real Estate Trends for the Coming Year

Just as the season of the year is subtly but surely changing for the better, there are at least three reasons to believe that, sometime in past recent months, the American real estate market may also have passed a turning point. Buyers, sellers and real estate professionals have been buffeted by storms and dark times, but there are some indications that the darkest hours have passed and brighter days in the world of real estate are returning.

Author: Sylvia Rogers
Date: Feb 14, 2013 - 2:10:55 PM

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In many ways, January is an unlovely month. It’s cold, it's dark, and all the major winter holidays are behind us. But, with a little effort, there are bright spots to be found, even at this time of year. During the month of December we passed through the shortest day and longest night of the winter. That means the days will be slowly growing longer and brighter. There are still some cold days ahead, and there will be snow and freezing rain, but those days are numbered. The trend is upwards.

Just as the season of the year is subtly but surely changing for the better, there are at least three reasons to believe that, sometime in past recent months, the American real estate market may also have passed a turning point. Buyers, sellers and real estate professionals have been buffeted by storms and dark times, but there are some indications that the darkest hours have passed and brighter days in the world of real estate are returning. Here are three reasons as to why:

Interest rates remain low:
Reason number one: Ask almost any banker or mortgage broker and they will tell you that interest rates are almost as low as they’ve been in a lifetime. To put this into perspective, ten years ago, the going rate on a 30 year fixed mortgage was about 7%. Currently, the rate is at 3.42 %. Some seasoned observers say that the rate will not go above four percent this year. Other experts give different numbers, but the basic truth remains that the Federal Reserve has given every indication that interest rates aren’t going to change very much for at least a couple of years. This isn't the best news for people who are banking their money, but it's great news for folks who plan to borrow and purchase a new home.

Foreclosure Inventory is decreasing:
Reason number two: When the real estate market began to enter its current “winter of decline,” many home owners found themselves behind on their payments. They slipped into foreclosure and the market was flooded with properties selling well below their former market price. This, of course, forced the overall value of all homes to fall.

Lender Processing Services, a national firm that keeps track of housing data, reported that, for November of 2012, the amount of foreclosure inventory (the number of foreclosed houses for sale) declined to 3.51%. This means that, as the high number of low-priced foreclosures finally work their way through the market, home prices that were artificially depressed for many months will begin to rise.

In addition to the decreasing amount of foreclosure inventory, the nation’s major reporting firms show that the market is seeing a lower number of foreclosure starts. This means that the future picture for home prices is likely to stay bright as well.

Home Price Index is rising:
Reason number three: The Home Price Index is on its way up, which is one more reason to think that brighter days might be ahead. The home price index (known as HPI for short) measures the prices of houses across the nation. According to the Federal Housing Finance Authority, which issues its numbers four times a year, the HPI for the entire country has been going up since the beginning of 2012. For the 3rd quarter of 2012, the HPI had improved by a full 4% from the same period of 2011.

As Andrew Leventis, the Principal Economist for FHFA, pointed out in the Authority’s most recent report, there are still plenty of areas of concerns regarding the housing market. Unemployment is still high, the income of Americans remains somewhat stagnant, and the world economic picture is far from certain. So, even if you are inclined to be optimistic, it is also wise to be cautious.

Brighter days ahead:
Still, even allowing for caution, it’s easy to see brighter days on the horizon. The reasons and trends described above are for the nation as a whole, but depending on where you live, the trend might be even more positive. A good example would be a small city, such as Rochester, Minnesota. Because of the presence of the world famous Mayo Clinic, Rochester has been somewhat insulated from the worst of the Real Estate winter. But even cities like Rochester haven’t had it easy. Now, however, they are seeing increases in housing inventory and the HPI trend has been positive since the second quarter of the year. And so, while (in the real estate world) it may be way too early for the beach blankets and deck chairs of summer, it wouldn’t be at all out of place to start looking for crocuses peeking through the melting snow.

Sylvia Rogers of Rochester, MN is a certified realtor with Edina Realty and specializes in assisting home buyers and homeowners interested in selling their home.

View all articles by Sylvia Rogers

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