Predicting Real Estate in 2013, Part 2: Home Prices

predictions for prices in 2013Last week we looked at predictions for new construction, given that housing starts are such an important barometer for the overall health of the real estate industry. In part 2 of our prediction series, we’ll take a shot at home prices: will they go up, go down, or stay the same in 2013?

Experts Expect a Rise

Many industry analysts expect home prices to continue upward with the New Year. Competition among investors, new buyers, and move-up buyers can’t slacken without a whole lot of new homes on the market. And the nation’s low inventory shows no signs of becoming high inventory anytime soon. The pressure, opines CNBC real estate reporter Diana Olick, could push prices up from 5-7% on average. Unfortunately, incomes aren’t predicted to rise accordingly, which means that some potential buyers could find themselves priced out.

However, the flip side of such a price increase: more sellers. If sellers see home prices edging up, they may be encouraged to list their homes. More homes mean less competition for each listing, which acts to slow price inflation.

Consensus in a Controversial Field

When it comes to real estate projections, consensus is hard to come by—doubly so now since the current state of the market has no precedent. However, in the case of home prices, we are hard pressed to find anyone who expects prices to fall again—certainly not to their worst lows—in 2013. Barring an unforeseen disaster, most economists believe 2013 is the year prices hit bottom, and begin their steady recovery. Given the performance of home prices is the last 6 months of 2012, that consensus seems warranted.

Higher Prices and the Homeowner

For owners, who may have no intention of selling now or in 2013, higher home values still have benefit. If homes are worth more, then more owners can enjoy equity again, which brings the extreme number of underwater mortgages steadily down. Indeed, this trend started in the latter half of  2012:  The Washington Post reported in September that underwater mortgages had dropped by an impressive 1.3 million.  We expect this trend to continue, and for the economic progress that comes along with said trend.

Higher Prices and Economic Recovery

What kind of progress? Homeowners with equity have a reason to refinance. That means they can spend money on home improvement, boosting that segment of the nation’s commerce. It means they have lower monthly payments and more disposable income in general. Simply, more money in homeowners’ pockets puts more money into the general pool. That money influences everything from retail bottom lines to job creation.

Interestingly, owners who come up from underwater may also become frequent sellers in 2013. Forbes worries a glut of such sellers could adversely affect prices in general, but again, expects at least a modest increase in home values overall for the year.

The upshot then? We predict home prices to rise nationally, though individual markets will both fall short and surpass the predicted national average.

And now, back to the crystal ball. More predications to come in part 3 of this series.

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Anna Marie Erwert writes from both the renter and new buyer perspective, having (finally) achieved both statuses. She focuses on national real estate trends, specializing in the San Francisco Bay Area and Pacific Northwest. Follow Anna on Twitter: @AnnaMarieErwert