According to a recent report by Kiplinger, good news is coming for the housing market! This doesn’t mean we should expect to see a sudden upswing in prices, rather that during 2012 prices should reach bottom and then start to stabilize, setting the stage for recovery and growth in 2013.
In the year ending September 30, home prices across the U.S. fell by 2.6 percent. Across the US, home prices have fallen just just over 38 percent in the five years since the peak of the market. Some cities felt the impact more than others – Detroit saw a near 75 percent decrease due to a combination of the failing auto industry and subprime lending. In Western/Central New York we missed the housing bubble so, contrary to the national trend, Buffalo, Rochester and Syracuse actually enjoyed price appreciation.
Bank-owned foreclosures sell for an average discount of one-third off the per-square-foot price of conventional homes for sale. While there will continue to be sales of foreclosed, i.e., “under priced”, homes for some time (2.2 million homes have finished the foreclosure process but aren’t yet on the market and 1.8 million home loans are 90 days or more delinquent), changes to the government’s loan modification program could allow up to two million homeowners to refinance their mortgages. This will help to keep people in their homes and slow the volume of distressed homes coming onto the market.
Homes More Affordable
In terms of affordability, the ratio of median home price to median family income has falled to 2.6 – a historic low. Similarly, the percentage of monthly family income consumed by a mortgage payment is 12 percent nationally – the lowest it’s been since 1971.
The average interest rate on 30-year fixed mortgages fell to 3.94 percent in October 2011, according to Freddie Mac. Guy Cecala, publisher of Inside Mortgage Finance, says “As long as the economy remains stagnant, unemployment remains high, and the housing market is in the toilet, rates will remain near historic lows,”. At least for the first part of 2012, he adds, rates should hover between 4 percent and 5 percent.
In theory, low rates and affordable prices should encourage buyers to purchase but they are having to deal with the stiffer requirements imposed by lenders; uncertainty over job security and the possibility that house prices will continue to fall. To many people, it doesn’t feel like the recession has ended. They are erring on the side of caution for now but, at some point, the pent-up demand will need to be fulfilled.
