What’s In Store For The Housing Market In 2013?

After years of declining property values, foreclosures and tightened lending guidelines the housing market picked up some steam in 2012.  Historically low interest rates led to a wave of refinances and new home purchases, values increased slightly and new home construction picked up marginally. Trulia’s “Housing Barometer” for October showed that the housing market was 47% back to normal.

Rock Bottom

If you were hoping values had hit rock bottom, the answer is likely “yes”. All major housing indexes show both asking and sales prices rising consistently over 2012.  Home values were crippled by the surplus inventory created by the housing boom.  An increase in lending and low interest rates fueled purchases of this excess inventory, causing values to rise. With interest rates forecasted to remain low in 2013, the trend of increasing values should continue.  New construction in 2011 came in at just over 600,000 units and this year 750,000 new units were build (by comparison, at the peak of construction in 2005 there were 2.5 million new units constructed).  Forbes Magazine predicts that 2013 will see about 1,000,000 units produced.  Finally, as values begin rising, more borrowers will get their heads above water again.  This gain in equity will help fuel the renovation market and benefit retailers like Atlanta’s Home Depot.

The Elimination of the Mortgage Interest Deduction?

One thing that both some Democrats and Republicans are considering is the elimination, or at a very least a cut of, the mortgage interest deduction.  This deduction costs the federal government more than $100 billion dollars in tax revenue annually, an amount that would surely help narrow the federal deficit, even just a little.  The elimination or cut in mortgage interest deduction could be a wash to the homeowners who have refinanced under the governments expanded refinance programs.  Their financial situations have likely improved as a result of their refinance, but does this lessen the sting?  A change in the mortgage interest deduction must be carefully considered because any reduction or elimination will make home buying more costly, thus, you guessed it, reducing home values.

Foreclosures and Delinquencies

Homes in foreclosure on the market will remain elevated but banks are unlikely to flood the market with their inventory, as this would force prices lower across the board.  Mortgage delinquencies are also expected to continue to remain high, but the continued loan and principal modification programs and short sales will prevent these from becoming foreclosures.