If 2012 was the year that the U.S. Housing market stabilized and began its long-awaited recovery, what can we expect in 2013? Will the recovery continue, or will we see another setback? And what are the implications for real estate professionals – especially those who specialize in distressed properties?
Most economists and market analysts agree that the housing market turned the corner in 2012, and was in the early stages of a tenuous – but sustainable – recovery. All the metrics were pointing in the right direction: housing starts were increasing from historically low levels; pending sales were improving; sales of both existing and new homes were up significantly from 2011; foreclosure activity was down 25% from its peak levels in 2010; and median home prices were rising steadily.
But before we get too excited, there are still some clouds overhead, keeping the real estate market from being completely sunny. Many of the housing starts were multi-family units or apartment buildings, indicating that builders were anticipating an increase in the number of renters rather than buyers. Cancellations of pending sales were running at some of the highest percentages on record, due to appraisals coming in lower than the agreed-upon sales prices, or financing falling through at the last-minute. Home sales, while improving, would ultimately max out between 4.5 and 5 million units sold, well off the peak of over 7 million homes a few years ago. The same argument could be made about rising home prices. And the improvement in foreclosure activity, while encouraging, was a little misleading, as 3 million seriously delinquent loans haven’t yet entered the foreclosure process, and short sale activity had spiked – reducing foreclosure numbers, but still representing a large number of distressed property sales.
The good news is that, assuming the government avoids the so-called “Fiscal Cliff,” and the economy doesn’t head into a recession with another spike in unemployment rates, the housing market should continue to see improvement throughout 2013. Less positive is that the improvement is likely to be minimal at best: the general consensus is that median home prices will grow by another 3-4% and home sales will probably be more or less flat. But this does represent progress after five years of falling sales and falling prices.
Distressed Properties Still in Demand
Even though foreclosure activity has gradually fallen over the past two years, homebuyers are still eagerly pursuing distressed properties and attempting to find the best deals on the market. There has, however, been a big shift in the type of distressed properties these homebuyers are purchasing, from REOs (lender-owned properties) to short sale homes. According to RealtyTrac, REO purchases peaked in 2009, with over 670,000 such properties changing hands, compared to approximately 500,000 REO sales in 2012. During the same time period, the number of short sales increased from about 665,000 to nearly 1 million. Obviously, brokers and agents looking to maximize their distressed property business are going to need to become proficient at identifying and securing short sale opportunities, and developing expertise in the processes and procedures these sales require.
All together, REO and short sales accounted for nearly 33% of all home sales in 2012, and it’s likely that the number of distressed property sales will actually increase in 2013 as more delinquent borrowers enter foreclosure, and as the backlog of properties in the foreclosure pipeline begin to work their way to the market. It’s also important to keep in mind that in some of the biggest and most active real estate markets in the country – California, Florida, New York, Illinois and Arizona, for example – distressed property sales often account for an even larger percentage of overall sales. And with over 500,000 REO homes not yet on the market, 1.5 million more homes already in foreclosure and another 3 million seriously delinquent loans, there’s at least several more years of distressed inventory to be sold.
As the housing market continues its slow, steady climb from the abyss over the next few years, successful agents and brokers will contribute to the recovery by clearing the market of the huge overhang of distressed properties, and – in a rare win/win scenario – grow their own businesses in the process.
Note: This article was originally published in the January edition of RIS Media Real Estate Magazine, page 47.