The Merriam-Webster Dictionary defines predictions as “something that is forecasted.” As a real estate agent, we are always trying to stay a step ahead. At this time of year, so many realtors are making predictions about what will happen in 2012 that I think they should open their own 900-number.
After much report reading, surveying and analyzing, I have my own predictions:
Assuming the European debt crisis doesn't derail a global economic recovery in 2012 and the U.S. continues on a modest growth path, home prices in Westchester County should begin to firm up and the number of sales will likely increase.
The spring real estate market is officially set to begin on Jan. 2, 2012. With the mild winter Westchester has experienced, many homeowners are prepared to immediately place their homes on the market. Unlike 2011, where heavy snow storms impeded sales efforts, 2012 is likely to launch with a larger than usual number of sellers -- many whom have waited several months to list in order to hit the spring market.
Competition is also something that many sellers want to avoid. Listing right after the New Year is a strategy that many will utilize, thinking it will be beneficial. Unfortunately, everyone else is thinking the same thing. The expected spike in the January inventory, along with current buyer trends, may lead some areas to suffer from a burdening inventory. This will temporarily push down prices for sellers who cannot wait it out. Unfortunately, the ripple effect of this might lead to homes being listed later in the year to be priced lower as well.
One thing that never changes is supply and demand. Local housing markets will thrive or falter, depending on these two factors. Today, buyers are taking more time to study their needs before pulling the trigger and purchasing a property. With more homes to choose from in the New Year, buyers will feel they have all the time in the world to look at more properties before moving forward.
Mortgage analytics provider CoreLogic recently estimated that 13 million homeowners nationwide have little or no equity in their homes. Many who are deeply underwater will likely end up losing their homes to foreclosure, emerging from the process with damaged credit and unable to qualify for another loan.
As those homes are approved for short sales or repossessed, they could put further pressure on home prices. CoreLogic estimates that the "shadow inventory" of distressed homes not yet on the market stands at 1.6 million homes at the end of October.
Areas that have not seen any effect from short sales or foreclosures are unlikely to see any effects in 2012. Communities which have an increased inventory of bank-owned properties will likely suffer from the “shadow inventory” once again.
Mortgage rates in 2011 were at historically record lows. However, it was not helpful to most buyers when banks advertised how little interest they could be paying on the mortgages they were unlikely to receive. Sure, the rates were low, but good luck to most buyers in getting a mortgage. Many banks this year made Scrooge seem generous.
In 2012, it is likely that banks will slowly begin to crack open those dusty wallets. That means that homes have never been more affordable in some places. Buyers who have been on the fence about purchasing might look at 2012 as the right time to buy.
Mortgage rates, however, could always shoot up again if the global economy suddenly blooms and inflation becomes a concern. But that's seen by many as a distant risk. To encourage borrowing, the Federal Reserve has lowered short-term interest rates to next to nothing, and they've indicated that they're likely to keep them there at least through mid-2013.
While some consumers understand that now is a great time to buy a home, there's little sense of urgency amongst them because many believe that neither home prices or mortgage rates are on the verge of rebounding anytime soon.
Adding to the stress, the real estate industry has been up in arms over proposed risk retention requirements that would require lenders to retain a five percent interest in all but the most conservative loans. Borrowers who don't meet minimum down payment requirements would end up paying higher mortgage rates.
Then there’s Fannie and Freddie, with the possibility that fees on loans guaranteed by the companies will go up -- an idea backed by the Obama administration in early 2011 as a way to boost private mortgage lending. In addition, the premiums charged by the Federal Housing Administration for mortgage insurance could also be headed up again.
Let’s also not forget that the Mortgage Interest Tax Deduction is always dangerously close to being eliminated. Were it to happen, homeowners could no longer deduct interest expenses on their mortgages from their income.
Realtors agree that in 2011, buyer and seller expectations differed greatly -- a disconnect which is often difficult to bring in line. This sentiment is likely to continue in 2012. Sellers have related to difficulty in finding buyers at desired sales prices. In many local areas, even as market values have fallen, potential sellers have not adjusted their prices downward fast enough to bring about a buyer.
Some homeowners do not have a choice -- they are underwater and cannot adjust their asking price much below what they owe on their home. Others who may have the freedom to do so may be averse to selling their homes at a huge loss.
2012, like all the other years before it, will be a roller coaster ride on the real estate train. It’s important for buyers and sellers to remember the basics -- price right, great pictures, and realistic expectations.