Why Buying Real Estate Could Mean Gains Ahead

binocularsNAR, the National Association of Realtors forecasts that 2013 could be a return to normalcy, with healthy price appreciation, an increase in both existing and new home sales, and a drying up of shadow inventory( properties either in foreclosure that have not been sold or homes where owner are delaying to place in the market until prices improve). Interest rates are expected to remain low though inflation could put upward pressure on both rates and home prices. For commercial practitioners, the rise in renter households is good news for the multifamily sector. Office, industrial, and retail are all expected to inch back, with slight declines in vacancies and positive growth in net absorption and rents.

Own vs. Rent

Despite U.S. population growth of roughly 1 percent per year, the number of owner households has held steady, in the range of 75 million since 2007,  while the number of renter households has increased from 35 million in 2007 to nearly 40 million today. Some renters who’d like to take advantage of today’s favorable prices and interest rates are finding credit standards too tight to obtain financing. NAR warns that continued tight credit conditions threaten to widen the wealth gap between owners and renters.

Builder Activity

New home construction has been well below the 50-year average of 1.5 million. Housing starts remain well below historical averages, even with new construction expected to rise from 776,000 units last year to more than 1.1 million in 2013. Depressed construction activity has kept inventories down and put upward pressure on prices.

Shadow Inventory

Delinquencies and foreclosures have dropped but remain high. Since hitting a level of nearly 4.3 million units in the fourth quarter of 2009, the shadow inventory—seriously delinquent mortgages and homes in foreclosure—has been declining. It was at​ 3.1 million units in 2012’s first quarter, still high but sharply below the peak. As a percentage of total sales, distressed sales are on the decline. In 2010 and 2011, they constituted about a third of the market. That dropped to 25 percent in 2012 and is expected to decline to single digits by 2014.

The Forecast

NAR is forecasting 3 percent growth in U.S. gross domestic product by 2014, along with a steady increase in national median home price. After years of tepid performance, both existing-home sales and new-home sales are expected to see significant gains this year and next, despite a gradual rise in interest rates. Commercial sectors are also seeing signs of upward progress. And good news is expected in the all-important employment picture: NAR Research estimates payroll jobs will grow by 2 million this year and 2.6 million next year.

Source: Realtor Magazine Jan/Feb 2013 by Robert Freedman – National Association of Realtors®

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