Home sales and prices are expected to keep rising in most areas in the year ahead, but mortgage rates are likely to climb, too.
Q. We have wanted to buy a home for the past two years, but have been waiting for prices to bottom out. Home values in the areas where we have been shopping have climbed a little bit in the past few months, but we're worried that it's just a temporary "blip" that will end soon and prices will start going down again. How do you think the housing market will do in 2013?
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A. Sales and prices fluctuate from one area to the next based on a variety of factors, ranging from national mortgage-rate trends to the state of both the U.S. and local economy. But housing markets in some parts of the country began showing new signs of life last spring, and all indications are many more markets will begin a full-fledged recovery in 2013 from the housing bust that began about six years ago.
I'm devoting this entire column to answering some common questions readers have recently asked about the housing market in the upcoming year.
Q. How can you be so positive about the market, considering there are so many homes for sale and so many others in foreclosure?
A. Actually, there really aren't that many homes for sale. There were a relatively modest 2.03 million homes on the market at the end of November, according to the National Association of Realtors, which equates to a 4.8-month supply based on current sales rates. That's the lowest supply level since the boom days of 2005.
Foreclosures indeed are still holding back some markets because their offering prices are so low. But the foreclosure rate has been slowing, and should continue to fall in 2013 as more people find new jobs or finally are able to refinance at today's lower mortgage rates to save their homes. Fewer foreclosures will help keep the supply-and-demand balance in check, which in turn will add more fuel to expected price gains.
Overall, about 4.6 million homes were sold in 2012. The National Association of Realtors forecasts that purchases in the year ahead will climb about 9 percent, to 5.1 million.
Q. How much will prices rise?
A. Again, it depends primarily on the state of the economy where you live and, to a lesser extent, the number of local homes for sale.
Price forecasts vary among trade groups and private-sector research companies. Economists at Standard & Poor's and the Realtors trade group are each calling for an average gain across the U.S. of about 5 percent in 2013. Researchers at lending giant J.P. Morgan Chase & Co. foresee a minimum 3.4 percent price increase, but say the average home value could surge as much as 9.7 percent if the economy meets the bank's most bullish growth projections.
Q. Which parts of the country will do best in the coming year?
A. Real estate information and services giant Trulia.com says the best price gains likely will be in areas with high job growth, low apartment vacancy rates (which encourage more renters to become homeowners) and a low number of foreclosures. Its top-10 list of best markets for 2013 includes four cities in Texas -- Houston, San Antonio, Austin and Fort Worth.
Rounding out Trulia's list are San Francisco, Seattle; Omaha, Neb.; Greater Bethesda, Md.; and Peabody, Mass.
Q. Where are mortgage rates headed?
A. Most experts agree they'll go up, but not by much.
Rates on 30-year fixed-rate loans now stand at about 3.5 percent for so-called "conforming" loans of $417,500 or less, according to the Mortgage Bankers Association. Economists at the trade group predict they'll rise to 3.9 percent in the first quarter of 2013, and hit 4.4 percent by the end of the year as the economy slowly picks up steam.
A roughly one-percentage-point increase over the coming year would add about $77 to the monthly cost of a $150,000 mortgage. But ironically, a rate hike actually could fuel the expected upswing in sales and prices by creating a "sense of urgency" among consumers who have been sitting on the home-buying fence.
The expected rate hike also serves as a reminder that homeowners who haven't yet refinanced at today's record-low rates should start filling out their loan applications sooner rather than later.
Our booklet "Refinancing the Right Way" provides several money-saving strategies to get the best loan deal and an easy worksheet to determine if refinancing makes sense for you. For a copy, send $4 and a self-addressed, stamped envelope to David Myers/Refi, P.O. Box 4405, Culver City, CA 90231-4405.
• For the booklet "Straight Talk About Living Trusts," send $4 and a self-addressed, stamped envelope to David Myers, P.O. Box 4405, Culver City, CA 90231-4405.
© 2012, Cowles Syndicate Inc.