Real Estate - What now? - Rick Yost

The housing market in the US and in Maine over the last six months can be summed up in a couple of short points—tight inventories and rising prices. While every market is a little different and real estate is a decidedly local affair, national trends and phenomenon tend to trickle down to Maine. So, what can we expect to see over the next six months in the US real estate market and in Maine?

I believe prices will continue to appreciate, but not at the exaggerated rate we have seen so far. Double digit growth will go away. Two of the more respected real estate research firms, CoreLogic and Altos Research believe that prices will end up between six and 12 percent for the year. There are a couple of factors that will keep price increases in check and keep us out of bubble territory.

Interest rates will continue to rise moderately in 2013. This rise in interest rates will continue to effect perceived affordability and in turn the prices that can be demanded by sellers. While interest rates are still at historical lows, raising rates temper buyer enthusiasm. On the plus side, rising interest rates tend to dry up the refinance markets and might lead to a slight loosening of credit standards as lenders look to meet profit goals. 

Inventory will loosen. Builders are stepping up construction and many new homes are coming into the market. Many home buyers that have been underwater (owe more on their home that it is worth) are starting to see the current run up in home prices create equity in their homes. There are an estimated 11 million plus homeowners underwater today. The equity that some of these homeowners are starting to realize is allowing many of them to take advantage of price appreciation. I do think that housing inventory in the most desirable locations will remain tight for up to another two years. More inventory will work to keep rising home prices in check.

As prices continue to rise, we will see fewer and fewer investor transactions. A large portion of the demand for homes has been investor driven. Institutional investors with pockets full of Wall Street money have been buying distressed homes in bulk and turning them into rentals. The run up in price shrinks the profitably on those types of transactions and forces investors to seek the returns they want elsewhere. This slowing of institutional investors’ purchases will also lead to a loosening of inventory.

These factors will all combine to keep home prices rising, but at a reasonable rate.

There are two other trends to look for over the second half of 2013. Foreclosure activity will continue to drop. Foreclosures were down 23 percent from a year ago during the first half of 2013 according to RealtyTrac, and this will continue. Short sales will continue to gain traction. Short sales were up 79 percent over a year ago due to new short sale guidelines loosening standards and lenders willingness to more readily process short sales. This uptick in short sales will continue throughout 2013.

Now you know what to expect, are you going to take advantage?

Rick is a realtor, real estate author, and longtime Windham resident. Contact Rick with any of your real estate questions or needs at columnist@TheWindhamEagle.com.