Will the Housing Recovery Continue?

Last year was the year that America's housing market began its long-awaited recovery. Will the recovery continue in 2013, or will we see another setback? And what are the implications for real estate professionals—especially those who specialize in distressed properties?

Most economists and market analysts agree that the housing market turned the corner in 2012 and was in the early stages of a recovery. All the metrics were pointing in the right direction: housing starts were increasing; pending sales and median home prices were improving; sales of both existing and new homes were up significantly from 2011; and foreclosure activity was down 25 percent from its peak levels in 2010.

But there are still some clouds overhead. Housing starts were up, but only compared to historically weak numbers. Cancellations of pending sales were running at some of the highest percentages on record due to problems with appraisals and financing. Home sales would ultimately max out a little more than 4.5 million units, well off the recent peak of more than seven million homes. And while foreclosure activity decreased, there are still three million seriously delinquent loans that haven’t yet entered the foreclosure process.

Assuming the economy doesn’t head into a recession with a spike in unemployment rates, the housing market should continue to improve in 2013. But the improvement is likely to be minimal: Median home prices will likely grow by another 3-4 percent and home sales will probably be flat.

Distressed Properties Still in Demand
Homebuyers are still eagerly pursuing distressed properties. Purchasing, however, has shifted from REOs (lender-owned properties) to short sale homes. According to RealtyTrac, REO sales peaked at more than 670,000 in 2009, compared to approximately 500,000 in 2012. Meanwhile, the number of short sales increased from about 665,000 to nearly one million.

REOs and short sales accounted for nearly 33 percent of home sales in 2012, and it’s likely that the number of distressed property sales will actually increase in 2013 as more delinquent borrowers enter foreclosure, and as properties in the foreclosure pipeline work their way to the market. It’s also important to keep in mind that in some of the biggest and most active real estate markets in the country—California, Florida, New York, Illinois and Arizona—distressed property sales often account for an even larger percentage of sales. And with more than 500,000 REO homes not yet on the market, 1.5 million more homes already in foreclosure and another three million seriously delinquent loans, there’s at least several more years of distressed inventory.

 

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