Well, the time has come again to polish up the old crystal ball, gaze into it, and see what's in store for the housing market in 2013.

Having spent long hours staring into the mists, it appears as if this year will be about as easy to predict as last year. Not because of any fundamental change in the housing market itself – although I so see plenty of adjustments afoot – rather the future is clouded because of the prevailing fractured political environment.

That said, here is what I am looking for this year.

1.   Interest rates are likely to stay at close to historic lows at least through the middle of this year. Inasmuch as there are some mumblings from members of the Federal Reserve relative to a slowing down in Qualitative Easing (which is basically the printing of money which is then added to the economy in order to stimulate growth) before the end of the year, I do not see this as putting rapid upward pressure on interest rates in the near-term. That said, I do think that they will start to come off their current lows, so now may well be a good time to lock in.

2.   Housing prices have bottomed out and we will continue to see appreciation in values across the board in 2013. The caveat here is that we are unlikely to see the kind of upward pressure in values that was seen in 2012. Unless we see a rapid increase in inventory levels, look for more modest price increases – but increases we will certainly see.

3.   In 2012, many were heralding the veritable tsunami of foreclosed homes that were certain to come to market and cause a rapid reversal in price gains. This, of course, did not happen.  Many may remember the huge numbers that were being bandied around as to the number of foreclosed homes that were supposedly heading our way. I personally heard numbers as high as five million units. Now that the smoke has cleared somewhat, the numbers are becoming a little clearer.

With a shadow inventory of around 2.3 million units of pending supply, I am actually not too worried at all. We need to get these homes to market and sold, and we will. It's just a matter of how long it will take. With over half of these homes delinquent, but not yet subject to foreclosure proceedings, I believe there will continue to be a shadow well into 2014.

That said, demand from the investment community, as well as from buyers who are not finding sufficient choice in the non-distressed market, should continue to reduce the number of distressed properties.

4.   Household formations should start to increase but this will not be enough to get the homebuilding industry back into full swing. Many builders are still uncertain, and while they see a supply/demand imbalance in the market, they have not yet pulled the trigger and gotten back to full production. This is likely to remain the case in 2013.

5.   There are several buyer groups that are expected to make an entry into the market in 2013.

Entry level buyers – First-time homebuyers have been sitting on the sidelines waiting for a sign that we’re at the bottom. As they hear about price increases in their desired neighborhood(s) they are likely to rush to become homeowners.

Move-up buyers – The price appreciation that has occurred in the last year has already lifted over one million underwater homeowners above water, with future price appreciation to lift them even more.  Look to see many of them considering trading up.

Move-down buyers – Empty nesters and retirees, who still have equity in their existing home, will think about buying a home that is more suitable to their current lifestyle. This may, or may not, include adult children as well as their aging parents.

Investors – Investors and, yes, even flippers, will continue to grow in numbers as they realize housing is the best risk-adjusted return on their money.

The recovery in the housing market has been a very long time coming, but I believe that it is here to stay, and all things being equal, I expect 2013 to be another good year.

Have a fantastic year!

Posted in Market News by Matthew Gardner

Many home owners, buyers, and sellers have been carefully watching the new federal finance package passed on January 1, 2013 by both the U.S. House of Representatives and the Senate. This is because it included automatic tax increases as well as federal spending cuts that involve real estate programs.

Many important real estate programs were extended, albeit for a limited time. Therefore homeowners, buyers and sellers should pay attention to these new time periods when planning financially.

Components of the legislation most likely to impact real estate decisions: 

• Capital gains tax exclusions for sale of a principal residence remain in place. This benefit protects up to $500,000 of capital gain ($250,000 for individual filers). However, home sellers with incomes of $450,000 ($400,00 for individual filers) or above and where the gain on the sale of their home is above $500,000 will now pay taxes on the excess capital gains at a higher tax higher rate.

• Key provisions of the Mortgage Debt Relief Act are extended through January 1, 2014. This provides financial relief in the form of lower taxes for home owners or sellers who have a portion of their mortgage debt forgiven by their lender. For sellers, this forgiveness occurs through a form of a short sale or foreclosure. For home owners, this relief comes in the form of a loan modification.  

Without this extension, any debt forgiven would become taxable. Home buyers will benefit from this extension since it will likely result in a greater number of  short sales  and foreclosures being available for sale, as underwater sellers are more incentivized.

• Deductions for mortgage insurance for filers earning below $110,000 are extended to through 2013. Mortgage insurance—usually paid for by home buyers—allows home buyers who have less money to put down to qualify for better loans. Home buyers with qualified residences will be able to continue to deduct the cost of this mortgage insurance. This benefit is also retroactive through 2012.

• The 10 percent tax credit for energy improvements to existing homes is extended through 2013. This credit, which is limited to $500, applies to existing homes and is also retroactive through 2012.

• Capital gains on real estate contributed by home owners for conservation are extended through 2014.  Increased contribution limits and carry-forward periods for contributions of appreciated real property will be maintained.

• The first $5M in individual estates and $10M for family estates are now exempt from estate tax. Tax rates in excess of these figures have increased. This will benefit the heirs.  

Other changes—such as new estate tax exemptions and an increased capital gain tax rate for those earning more than $450,000 ($400,000 for individuals)—may also impact real estate decision-making. As always, home owners, buyers, and sellers are advised to seek the advice of a qualified tax advisor before making major financial decisions, including the decision to buy or sell real estate.

Posted in Market News by Edward Krigsman

8 Reasons Why You Should Work With a REALTOR®

Not all real estate practitioners are REALTORS®. The term REALTOR® is a registered trademark that identifies a real estate professional who is a member of the NATIONAL ASSOCIATION of REALTORS® and subscribes to its strict Code of Ethics. Here's why it pays to work with a REALTOR®.

1. Navigate a complicated process. Buying or selling a home usually requires disclosure forms, inspection reports, mortgage documents, insurance policies, deeds, and multipage settlement statements. A knowledgeable expert will help you prepare the best deal, and avoid delays or costly mistakes.
2. Information and opinions. REALTORS® can provide local community information on utilities, zoning, schools, and more. They’ll also be able to provide objective information about each property. A professional will be able to help you answer these two important questions: Will the property provide the environment I want for a home or investment? Second, will the property have resale value when I am ready to sell?
3. Help finding the best property out there. Sometimes the property you are seeking is available but not actively advertised in the market, and it will take some investigation by your REALTOR® to find all available properties.
4. Negotiating skills. There are many negotiating factors, including but not limited to price, financing, terms, date of possession, and inclusion or exclusion of repairs, furnishings, or equipment. In addition, the purchase agreement should provide a period of time for you to complete appropriate inspections and investigations of the property before you are bound to complete the purchase. Your agent can advise you as to which investigations and inspections are recommended or required.
5. Property marketing power. Real estate doesn’t sell due to advertising alone. In fact, a large share of real estate sales comes as the result of a practitioner’s contacts through previous clients, referrals, friends, and family. When a property is marketed with the help of a REALTOR®, you do not have to allow strangers into your home. Your REALTOR® will generally prescreen and accompany qualified prospects through your property.
6. Someone who speaks the language. If you don’t know a CMA from a PUD, you can understand why it’s important to work with a professional who is immersed in the industry and knows the real estate language.
7. Experience. Most people buy and sell only a few homes in a lifetime, usually with quite a few years in between each purchase. Even if you have done it before, laws and regulations change. REALTORS®, on the other hand, handle hundreds of real estate transactions over the course of their career. Having an expert on your side is critical.
8. Objective voice. A home often symbolizes family, rest, and security — it’s not just four walls and a roof. Because of this, homebuying and selling can be an emotional undertaking. And for most people, a home is the biggest purchase they’ll every make. Having a concerned, but objective, third party helps you stay focused on both the emotional and financial issues most important to you.