After a rough few years, the housing market and the economy are finally on an upward trend! Housing starts, prices and confidence are showing better figures everyday. Of course there are always ups and downs, and while some investors are still being cautious about jumping into the market, 2013 is promising to bring a more competitive market for homebuyers. With the housing inventory as low as it is, experts wouldn't be surprised if bidding wars break out among investors and homebuyers. It is expected that homes will sell fast in 2013 as long as they are priced right. It is a homesellers market!
When the market was experiencing buying dry spells during the recession, the Federal Reserve dropped interest rates to record-lows in order to lure buyers. Now that things are steadily improving, the rates may begin to slowly climb upward, however experts are not expecting significant jumps. Some banks have already vowed not to touch the interest rates until the unemployment rate drops. Even if mortgage rates do inch upward, they are expected to remain around 4% which is still remarkably low compared to years past.
Mortgage rules are always being amended in order to prevent fraud and reckless lending to the underqualified. The Consumer Financial Protection Bureau recently issued new mortgage standards with new criteria for qualifying for a loan. Some of the new rules state that a qualified mortgage cannot include risky features like interest-only payments or negative-amortization payments. Loans cannot have fees and points above 3% of the total mortgage, and the total debt-to-income ratio must be limited to 43%. Some experts are concerned that these tighter rules may restrict credit and discourage lower-income homebuyers. Additionally, there are new rules designed to stop over-borrowing. Some fear that this could make the process longer for potential homebuyers or even prevent some from qualifying. Those looking to purchase a home should begin the mortgage lending process at least three months in advance since some of the new lending standards may cause time delays.
The new rules aside, 2013 is expected to remain in this upward trajectory. Home pricing indexes started to rise last year and promise that home prices will continue to increase. This will encourage homeowners to want to sell again, and cause homebuyers to jump in quickly before the prices rise too high. It is expected that home prices will jump 6% this year.
We already mentioned that housing inventories are low. They've been steadily falling since 2007. If the inventory remains at a below-normal level, some fear that this will hold back home sales and impede the market's recovery. However, rising home prices should help to increase inventories. Housing construction is up 60% in the last two years as well, however it is still far from where it should be. It is estimated that roughly 1.5 million units need to be built every year to keep up with housing demands. Last year, only 600,000 were built, and experts are expecting 750,000 to be constructed in 2013. With high building-material costs and a lack of skilled laborers, builders confidence is moderate, but there is potential for this to all improve this year.
As far as foreclosures go, there are still more than a million homes in the process but the overall crisis is nearly at an end. As the market improves, more and more people are taking advantage of foreclosures and short sales. Some investors are even buying homes at 50 cents on the dollar, renovating them, and putting them back out there which helps to stimulate the market.
2012 saw a refinancing boom because of low interest rates, but 2013 is expected to slow. Refinancing helps to boost the economy by reducing payments so homeowners have more money to throw toward consumerism. Refinancing will only continue booming as it did in 2012 if eligibility requirements expand or if rates drop further. However, borrowers looking to refinance should start the process now!
Overall, the complexities of the housing market are very reliant on a tug and pull system. Something increases and causes something else to decrease, but the balance is improving and 2013 is expected to be a strong year for all involved.
