What’s in store for real estate in 2013?

In order to answer where we are going, we need to understand where we’ve been and what is being done differently than before.

We’ve been reeling from the impact of artificially inflated home prices and MBS => Tranches => CDOs/derivatives (>$70 Trillion still exist and JP Morgan Chase has over $700 trillion in total derivative alone) which in short, are large insured gambles that failed with falling home prices and where at every level that touched real estate: financial firm/investors; real estate (agents, buyers, sellers, appraisers); US Congress; Gov’t regulators; GSEs (Fannie/Freddie), rating agencies (Fitch, Moody’s, S&P), mortgage industry (lenders, loan officers), and the Federal Gov’t (including FHA relaxation of their mortgage restrictions) with laws requiring certain non-common sense loans to be made who participated in the debacle.

Dodd-Frank law is a joke and doesn’t solve any of the major causes of this mess. In addition to not closing an economic loophole that created the derivatives market, the Federal Government is now trying to solve the problem they created – allowing huge exposure in financial markets! It intends to define a Qualified Residential Mortgage, but they still haven’t. They have combined 2 loan disclosure forms for borrowers, but the majority of borrowers didn’t need the simplified forms. The FHA is going to both increase and require annual MIP for all FHA loans in 2013 and beyond to become “permanent”. That means the annual MIP is never eliminated after the original LTV reaches 78% (per current Federal law).

So how does all this impact you?

Update 4-12-2013: What’s happening in 2013? Some ups and some downs…http://www.forbes.com/sites/morganbrennan/2013/04/12/where-u-s-real-estate-might-be-getting-bubbly/

Parker’s Projections for 2013

– You will hear that the housing prices have hit bottom and are going back up – Well, that all depends on where you look and since all real estate is local – it depends on prices and condition in your subdivision/immediate area. In my subdivision, similar homes but different physical conditions have sold for as low as $59K to as high as $189K. If you need me to run an analysis of value, let me know but it will depend on prices in your subdivision and within a mile radius.

– There are 11 million homeowners underwater (owing more than their house is worth) and it will take a while (another 2-4 years) to reverse that direction. If the economy gets worse next year, expect higher rates of foreclosure. Especially since the major class action Federal lawsuit against lenders for non Government loans was settled for $25 billion and impact of Obamacare will be clearer on the full time employees and business decisions to continue employment/operations.

– The Federal Reserve has committed to keep residential real estate interest rates low until 2014 (same year Ben Bernanke is leaving the Fed), so this tends to keep real estate purchases and refinance attractive. But artificially low rates mean much higher rates to come after that. Higher rates will have a downward pressure on home prices that may offset low inventory.

– The 2007 Mortgage Forgiveness Debt Act, if not extended, will mean those who get foreclosed or agree to short sales will pay income taxes (the loss is considered income by the IRS) on the difference between (what they wind up receiving for your property) less (their expenses plus your loan balance on the property). It also depends on whether the lender’s costs to sell the property are included in that loss and subsequent taxable income. That really stinks that you have to pay income taxes on a loss on a home you no longer own – and that tax liability NEVER disappears!

– There are now fewer than 16,000 residential single family properties for sale on the FMLS (statewide) database, down from 25,000 a year ago; 10,000 are now under contact but not closed; and about 21,000 listings expired this year but some of them were relisted. Add another 1,000 or so that are for sale by owner or not in FMLS statewide and that accounts for very few choices for Buyers. Low supply may push prices higher. But since many distressed properties were being sold for low prices, no Seller wants to compete against those properties and therefore don’t put their homes up for sale unless driven from necessity or pure desire to move. If Sellers believe the market is getting better, they’ll place more homes on market and increase supply which may drive prices down by having “too” many choices. The major complaint now is that there is not a “good & balanced” choice of inventory. However, it also doesn’t mean there is a rush to buy a home at a premium even though the supply is low, but the nicer homes in good areas get multiple offers. Buyers are still looking for pristine properties with updated kitchens and bathrooms or equivalent within subdivision; very open and uncluttered; and in the right school district.

So what can we really expect in 2013 in residential real estate?

Another bumpy up and down mixed bag ride!

– Continued low interest rates, low inventory of standard resale homes, more foreclosures/short sales than we saw in 2012, more downward pressure on home prices but pockets of rising prices, current rise in new housing construction to level off, mortgage interest deduction to be capped at a certain level, economic recessionary market after 1Q13, higher unemployment levels of full time employees, more employment of temporary part time employees, more start-up businesses, more retirees filing for early social security retirement, more Federal Reserve QE4 push to inflationary consumer prices and more opportunities to find micro markets for goods and services which will probably all retard economic growth and the movement and sale of existing residential real estate.

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