Higher prices in the outlook for real estate market in 2013
"If this were a 'normal' housing market I'd say we are very close to a turning point because the number of homes currently for sale is down, the number of new foreclosures has been decreasing and mortgage interest rates are near historic lows. These are all positive signs that would normally point toward a strong housing market for home sellers this spring (However) economic uncertainty makes it hard to look at the housing market in isolation. But I'm going to go out on a limb anyway and say that I don't think home prices will fall much more than another 5 percent or so on average and the overall Puget Sound region housing market will probably be 'flat' in 2012, which means I don't expect much depreciation or appreciation."
Notice that I hedged my prediction a little because I was not sure how the overall economy would affect the housing market, but the signs were pointing toward a "bottom" in housing prices. As it turned out, the economy was slow but it did not have much of a negative impact on the housing market as home prices in many areas of the Puget Sound region increased for the first time in several years.
According to the Case-Shiller index, home prices in the "Seattle" housing market increased 4.8 percent for the year ending September 2012. Notice that I put Seattle in quotes because Case-Shiller includes everything from Everett to Tacoma in its Seattle housing market, and as we all know there is a very wide range of different neighborhoods within that broad region. Some neighborhood home prices increased more than 4.8 percent while others increased less and some dropped slightly. Therefore, it's always hard to make general statements about the overall Puget Sound region housing market.
My 2012 prediction was fairly accurate because I predicted little to no appreciation or depreciation. We actually had a small amount of appreciation, which supported my feeling at the beginning of this year that we were nearing a turning point in the housing market. Therefore, I think it's fairly safe to say that after peaking in 2006-07 and then dropping for several years, home prices throughout most of the Puget Sound region have finally bottomed and will probably continue to increase in 2013.
Now the question now is: How much will housing prices increase?
Again, I'm going to hedge my prediction a little because of economic uncertainty, but based on the very low supply of homes for sale and increasing buyer demand due to record low mortgage interest rates, I expect to see home prices increase 10 percent or more in desirable neighborhoods near major job centers by the end of 2013. Outlying areas will probably increase a little less. Homes in good neighborhoods are selling very fast right now. For example, in my neighborhood homes are selling in 3 or 4 days. A couple years ago, there would be more than 10 homes for sale at any given time. Today, there are currently no homes for sale in my neighborhood. Tight housing supply plus increasing demand means higher prices.
However, one factor that may hold back home price appreciation is the problem that appraisers have finding "comps" to justify the purchase price buyers are willing to pay. For example, buyers may be willing to pay $500,000 for a house, but if every comparable house in that neighborhood has recently sold for only $450,000 the appraiser has no "comparables" to justify the higher price and the bank will not make a mortgage loan on a $500,000 appraised value. Therefore, it will take some time for appraisers and lenders to catch up to the increasing market price for homes in this region as home sales close at gradually higher and higher prices.
For home buyers, competition will be tough in 2013 but don't get caught up in home-buying mania. If you are uncertain about your job and economic future, you are better off continuing to rent. Don't buy a home unless you plan to stay in for at least seven to 10 years. You should buy a home because it is a nice place to live and fits your lifestyle, not as an investment because home price appreciation is not guaranteed.
Steve Tytler is a licensed real estate broker and owner of Best Mortgage. You can email him at firstname.lastname@example.org.
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