Real Estate Predictions for 2013, the New Year's Eve Edition

Predictions for 2013: The Final Chapter

Well, tomorrow brings the first day of 2013. What a crazy year 2012 was- a sometimes excruciating, other times exhilarating mix of progress, decision-making, tragedy and wonder. And for real estate, 2012 was all of those things, which makes predicting the industry’s performance in the New Year an exciting- but potentially imprecise- task. Still, on this New Year’s Eve, we bring you a round-up of our predictions for 2013 with a fair degree of certainty—because we have the data to back us up.

Home Prices

As we already explained, we join the majority of experts who agree home prices are poised to rise in 2013, just as they have done steadily in the last quarter of 2012. Particularly impressive, per ZipRealty data, are gains over 20% enjoyed in formerly hard-hit metro areas like Las Vegas and Phoenix. 

biggest home price gains 2012

© ZipRealty, Inc.

Next year, driven by continued low inventory and even rumors of lower mortgage interest to come, the national median sold price could climb 5% or more within the first 2 quarters of the year. The unknown here: if prices rise enough to convince more home sellers to list their properties, will the low inventory factor evaporate? We tend to think not: homeowners will first want to come up from underwater, refinance to the current low rates, and being enjoying equity before they quickly sell. However, if would-be-sellers have just been waiting for the moment they could sell at a profit, we may see more sellers entering the market in 2013.

New Construction

Housing starts, again as we explained in our first chapter of new year’s predictions, are the number of new houses begun during a particular period. They are used as an indicator of economic conditions because they reflect buyer confidence and financial health, as well as the employment of everyone involved with building homes and lending the money to do so. These housing starts have risen steadily in 2011, as evidenced by this graph from the National Association of Home Builders.

new housing starts

We strongly expect this trend to continue, particularly in dense urban areas taking advantage of the current demand for close-in housing walkable to every day services. Look to cities like Portland and San Francisco, where urban planners are already working to develop more homes from sustainable materials, closer to downtowns and city centers.

With an eye on green, localized, and innovative home and business structures, 2013 will be an exciting year for construction in this country.


Tenants will be strongly tempted to become owners in 2013 if their rents go up—yet again—as they have done nationally throughout 2012. This graph from the Consumer Price Index shows this trend.

rents in 2012

Unfortunately for renters, experts expect more inflation of rents this coming year, largely because of the low inventory of homes for sale. With such steep competition for each home, only the very best candidates are able to get loans. This could keep more and more would be buyers on the sidelines, renting instead of owning.  Lower vacancy rates mean higher rent.

The pinch will be worst in densely populated areas, like New York, San Francisco, and Washington D.C., but all U.S. cities will face this crunch of fewer homes (whether rented or owned) and higher demand. Of course, this leads back to new construction, and the motivation to build more housing—coinciding with our prediction for a boom in that part of the market.

The Mortgage Industry

Because of the Dodd-Frank mortgage industry regulations (not fully released to the public at time of this blog), loans will be more difficult, and potentially more expensive to obtain. However, we expect once all parties understand the new procedures, real estate can get back on track for a healthier and more stable future.

Shadow Inventory

The threat of millions of distressed properties flooding barely recovering markets has made many industry professionals worry. But so far, the phenomenon hasn’t much impacted prices, as we see the national median rising while REOs, short sales and foreclosures slowly process through local systems.

The concern now is how we might continue to smoothly process these properties in light of the sheer number of them. The Mortgage Monitor Report shows 5,300,000 properties in some stage of distress, and Dr. Housing Bubble breaks them down further:

  • -1,957,000 late 30 days or more, but less than 90 days
  • -1,543,000 90 or more days late, but not in foreclosure
  • -1,800,000 in foreclosure process

With rules on foreclosure procedures still changing at federal, state, and city levels, we can’t predict for sure how well these numbers will be dealt with, or even how they’ll be dealt with. We can only hope agencies have learned from their past mistakes with this segment of the real estate market, and are better prepared to work with it.

All in all, the New Year will be an exciting one for real estate, with challenges: we expect inevitable steps back for the industry, but are excited about each step forward.

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. As this is her last blog for ZipRealty, you can find her at SFGate and CurbedSF for more real estate insight. Follow Anna on Twitter: @AnnaMarieErwert