Five Things Consumers Should Expect From the Housing Market In 2013
December 26th, 2012
In 2012, the national housing market finally turned a corner. We’ve now experienced 13 straight months of home value appreciation. Sales were up significantly over 2011 as buyers returned to the market, boosting demand.
So what will 2013 have in store? Here are five things consumers can expect to see in the housing market next year:
Up, Up and Away
?
The national housing market hit bottom in October 2011, and home values have since risen 5.3 percent from that trough. The most recent
Zillow Home Value Forecast calls for 2.5 percent appreciation nationwide from November 2012 to November 2013.
? According to a recent Zillow survey of more than 100 economists and analysts, respondents predicted home values (based on the S&P/Case-Shiller U.S. National Home Price Index) to rise 3.1 percent in 2013, on average.
?
Most markets covered by
Zillow’s Real Estate Market Reports have already bottomed out, with only 10 of 255 covered metro areas not projected to hit a bottom within the next year.
Bottom Line: Homeowners looking to sell in 2013 can largely rest assured they won’t be selling at the bottom,
and many will find themselves in a sellers’ market. Potential buyers in 2013 may be more motivated to get a deal done while affordability is still extremely high and mortgage rates continue to be historically low.
Real Estate Is Local Again
According to the
Zillow Breakeven Horizon, buying beats renting when staying in the home for three years or more in roughly 60 percent of U.S. metros. The areas where it might make more sense to buy (if you’re planning on staying for three-plus years) are clustered in the Southwest and Southeast. If you won’t be staying put for at least a few years, consider renting in the Northeast, where buying often doesn’t make more financial sense until five years or more.
The goal of
Zillow’s Buyer/Seller Index is to determine where buyers have the most leverage in a sale, and where sellers might have the upper hand. In general, we determined that metro areas in the West and Southwest including the
Bay Area,
Las Vegas and
Phoenix are strong for sellers. Metros in the Midwest and Mid-Atlantic places such as
Chicago,
Cleveland and
Philadelphia are best for buyers.
Bottom Line: The housing market recovery has remained true to the old real estate axiom of “location, location, location.” How your local market is faring today and if it makes more sense to buy or rent, to sell now or to hold off if possible is largely determined by unique, local factors and fundamentals. Arming yourself with timely and comprehensive local market information is good advice at any time, but will be even more important in 2013 as buyers continue to seek bargains and sellers look to maximize returns.
Coming Up for Air
In the third quarter of 2012, the percentage of homeowners with a mortgage in negative equity or “underwater,” owing more on their mortgage than their home was worth fell below 30 percent for the first time since Zillow began tracking that data using an improved methodology in early 2011.
Bottom Line: As home values continue their upward march in 2013, more homeowners currently trapped underwater will begin to surface. This will be good for buyers exhausted by limited inventory and intense competition in markets such as Phoenix and Miami, but it will also have the effect of cooling price increases. As a result, in 2013, we predict home value appreciation in many areas will look more like a series of steps, characterized by cycles of price spikes and plateaus. Price spikes will free some homeowners from negative equity, allowing them to sell, thereby easing supply constraints and dampening prices until the cycle is repeated.
Historically Affordable
At the same time, home values while recovering nicely still have a long way to go to reach their pre-bubble levels. Overall, national home values in November were still down 19.4 percent from their peak in May 2007, according to Zillow.
Bottom Line: Between 1985 and 2000, Americans spent, on average, about 20 percent of their household income on mortgage payments. That percentage increased to more than 24 percent by 2006, before falling to just 13 percent by the second quarter of 2012.
If you can qualify for a home loan, the combination of low rates and low prices means your home-buying dollar will continue to take you farther in 2013 than in recent years, even for buyers on modest budgets.
Mortgage Interest Deducted?
Changes to the mortgage interest deduction (MID) may be a key element of any “grand bargain” reached by politicians in order to avert the year-end fiscal cliff. If adopted, any measure to limit or repeal the MID will result in some home price impacts over time and by market segment.
Home values at the high end of the market will likely be more negatively impacted by MID changes than home values overall, according to a recent
Zillow survey of economists. For example, in the event that the maximum MID-eligible mortgage amount is reduced from $1 million to $500,000 and the deduction allowance for second homes is eliminated, the majority of respondents said they expect high-end home prices to fall while U.S. home prices overall experience little or no price impact.
Bottom Line: Real estate lobbying groups have long fought against changes to tax rules allowing for the deduction of mortgage interest, arguing that any changes will impact or eliminate some of the historic financial advantages of owning a home. But unless you’re buying a proportionally more expensive home or are buying in a more expensive area, the impacts of MID changes will likely be muted. The decision to buy or sell a home is highly personal and dependent on a number of factors, only one of which is potential tax implications. In 2013, make your decision to buy or sell based on your own informed opinion and your unique situation.
CAVEAT: Remember that all Real Estate is LOCAL and the reason we Real Estate Professionals give Zillow market evaluations the nick-name "Zestimates" is because Zillow uses computerized statistics without the human eye involved for making comparisons on properties, sites, neighborhoods and amenity influences. Their information is great for trend forecasting, but should be coupled with the opinion of your personal Real Estate Professional.
Only in Santa Barbara.... cymbidium orchids are beginning to put out their flower spikes. 
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