2013 Is Looking Good For the Housing Market

All Signs Point To Continuing Recovery

Lower inventory = higher prices

US News reports that the “supply of homes for sale across the nation has fallen 43 percent,” allowing sellers to raise prices and causing bidding wars among buyers. With pricing corrections underway, home inventories will need to expand again in 2013 to support the continuing recovery.
In Trulia’s “Housing in 2013: What’s In, What’s Out,” worry over home prices finding a bottom is so 2012 — in 2013, the hot topic is when will housing inventories bottom out?

Reparation replaced with prevention

If 2012 was the year of fixing what went wrong with the mortgage industry, 2013 is anticipated to be the year of implementing policy to ensure it never happens again. New mortgage rules are to be announced by the Consumer Financial Protection Bureau in January that are intended to motivate lenders to expand mortgage credit, while preventing a recurrence of the abundance of high-risk loans that precipitated the housing market crisis. Expanded credit is needed to expand the pool of hopeful buyers who qualify for mortgages.

Housing affordability begins to shrink

The record low mortgage rates along with depressed home prices contributed to housing affordability being near all time highs. With 2013 expected to see mortgage rates rise, housing inventory levels drop and home prices increase, housing affordability next year may be a shrinking opportunity.
For more predictions about the housing market in 2013, check out these resources:

• US News — Top 5 Predictions for the Housing Market in 2013
• Trulia — Housing in 2013: What’s In, What’s Out
• Housing Wire — What real estate trends suggest for 2013

Why Your Mortgage Interest Deduction May Go Off the Cliff

Congress Contemplates Making Changes To Major Homeowner Benefit

Happy Centennial to mortgage interest deduction!

Nearly 100 years ago, in 1913, Congress amended the Constitution to allow for the country’s first income tax — and agreed to make all interest payments deductible from this new obligation. A few decades later as the country began to emerge from the Great Depression and the Second World War, more and more Americans were buying homes and the tax deductibility of mortgage interest payments became a significant element of promoting home ownership.

Mortgage interest deduction costs $100 billion a year

As the “fiscal cliff” and huge budget deficit hang heavy on the minds and desks of policymakers in Washington, the mortgage interest deduction is thought to be close to the top of the list of possible solutions to reducing the deficit. The mortgage deduction is both “one of the most cherished in the U.S. tax code… and on eof the most expensive, estimated to cost the federal government $100 billion this fiscal year.” (Los Angeles Times)

Likely to be “adjusted” but not “eliminated”

Experts agree that it is unlikely that a wholesale elimination of the mortgage interest deduction will be approved. It is more likely that the code will be refined to reduce the benefit for high-income households and borrowers. The president of the National Association of Realtors (NAR), Gary Thomas, commented that it has always been the N.A.R.’s position that the mortgage interest deduction is vital to the stability of the American housing market and economy, and we will remain vigilant in opposing any future plan that modifies or excludes the deductibility of mortgage interest.” (The New York Times)

Changing the deduction has bi-partisan support

In a time when there seems to be little upon which Democrats and Republicans can agree, changing the mortgage interest tax deduction seems to be striking the right bi-partisan note. Both President Obama and the former Republican presidential nominee, Mitt Romney, have come out in support of capping the deduction.

Via The American Prospect, The Los Angeles Times, The New York Times.

Will Rising Home Prices Slow Recovery?

The Housing Market Can’t Win For Losing

Home prices have been rising — the S&P/Case Shiller index showed an annual increase of 3.0 percent from last year; Phoenix, AZ showed a whopping 20 percent annual increase in average home prices.

Some experts have begun to express concern that home prices are being driven by investors snapping up good deals to turn them into rentals, which are offering a good return on investment. Paradoxically, as the investors drive home prices up, the anticipated returns on the investment property shrink — meaning the demand from investors will also drop.

Phoenix, with its 20 percent jump in average home prices, is a perfect example — droves of investors swooped in to take advantage of dramatically depressed prices last year, ultimately creating bidding wars and significantly shrinking inventories and driving the double digit price gains.

Nationally, the housing market recovery has been remarkably uneven — on the one hand there is Phoenix, gaining 20 percent, on the other there is Chicago, where the average home price dropped 1.5 percent from last year.

While the investors may be spurring the housing market recovery now, long term recovery will rest on the re-emergence of first-time home buyers. Home owners with steady incomes and long-term home ownership plans will support and stabilize not only the market, but also the neighborhoods where they buy.

Via CBS News, NBC News, US News, and the Chicago Business Journal.