Is 2013 going to be a lucky year for many homeowners and home buyers? Experts say it is.
Now that 2012 is behind us, it’s beneficial to take a look at what we left behind and what we are marching towards. Ten of the past twelve months experienced rising median home prices according to the National Association of Realtors. The number of existing homes buyers purchased was 4.65 million, up 9.2 percent from 2011, and was the highest volume increase since 2007, when 5.04 million homes were sold.
As the volume increased, the inventory available for sale decreased to 4.4 months, which was down significantly from a high of 10 months in 2010. One significant contributor to buyer’s purchasing power was historically low mortgage rates. Per Freddie Mac, mortgage interest rates in 2012 stayed below 4 percent. Thirty-year fixed-rate mortgages began the year at 3.96 percent and ended at an average of 3.35 percent.
Given the improving trends of 2012, it wasn’t surprising that 2012 marked the end of 48 months of depression in the housing industry according to Karl E Case, professor and co-developer of Standard & Poor’s/Case-Schiller house price index. Furthermore, the end of the housing depression was marked by a concurrent reduction in short sale and foreclosure transactions from approximately one in three homes to one in four homes. “There is no question that we have turned what seemed to be a headwind into a tail wind,” says Mr. Case.
For the first time in nearly half a decade, some home owners are experiencing a nearly-forgotten, but an encouraging trend of positive equity, namely their home is worth more than the mortgage. Corelogic estimates that only 25 percent of all Illinois homeowners are now underwater. Many of those underwater homeowners are eager to take advantage of low housing prices.
To participate in the recovering housing market, those sellers may consider unshackling themselves from their home and their mortgage via a short sale, whereby a property sells for less than the mortgage owned on the property. Due to historically low interest rates, as well as the extension of the Mortgage Forgiveness Debt Relief Act, which exempts sellers from the income tax implication of a short sale, the volume of short sales in Chicago is actually forecasted to increase in 2013, not decrease, because sellers of underwater properties want to become buyers of attractively priced houses and lock in low interest rates.
The increase in short sales are expected to be closely observed by home buyers due to the low inventory of available homes for sale, currently standing at 4.4 months, a significant decline from 10 months in 2010, according to NAR. Many Chicago realtors are even complaining that in certain neighborhoods, such as Lakeview and Lincoln Park, where there is not enough inventory of good properties for their prospective buyers. The scarcity of inventory is resulting in price increases and declining days on market.
A big thanks to Michael Hobbs, SRA, LEED GA, President of PahRoo Appraisal & Consultancy, who provided the content for this article. He is a local expert on real estate appraisal and sustainable energy efficiency’s impact on property values. His firm is an Angie’s List 2012 Super Service Award Winner for four years in a row. Mr. Hobbs can be reached at 773.388.0003. www.pahroo.com.