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.
- 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.
- 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.
- Still, 28.2 percent of homeowners with a mortgage remain underwater. Because underwater owners have a far more difficult time selling their home, a large number of homes that otherwise might end up on the market aren't getting listed. As a result, inventory in many areas is incredibly tight, leaving buyers to fight it out amongst themselves, which in turn can help drive up prices. This, among other factors, has led to tight inventory in many of the hardest-hit cities around the country.
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
- Mortgage interest rates have been hovering at or near historic lows for the past year, and the Federal Reserve has taken concrete steps to ensure they stay low for at least the foreseeable future.
- 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.
- 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.