What Does the Current Housing Market Mean to You?

The past few years have been rough on homeowners. The collapse of the housing bubble, high unemployment, and even higher levels of foreclosures have left many wondering what the future holds when it comes to the housing market.

Over the past 4-5 years homeowners have been hit extremely hard in the United States when it comes to finances. The year 2011 was particularly frustrating for many because four years out from the housing bubble crash, record breaking low rates for mortgages, and even some government programs to help those in foreclosure failed to yield the results many expected and needed. Fiserv, an economic forecasting firm, predicted a national drop in housing prices for 2011 of 5% on average, and they were not far off. The continued decline in housing prices has left over 23% of mortgage holds upside down in their mortgage. This means that they owe more on their house than it is worth at current market value. With all of these pessimistic signs of the housing market, many homeowners were asking what they should do coming into the new year.

To put it simply, STICK IT OUT. This same economic data firm, Fiserv, has predicted that 95% of markets across the country will see housing prices increase over 2012. This is good news, but must be taken with a grain of salt. Price recovery, while it should be positive, will be an extremely slow process. With this said, we have already seen some improvement in key market indicators so far in 2012. Both the existing home sales report and new home sales report for January 2012 came out this past week. Released on February 22, 2012, the Existing Home Sales showed signs of improvement, moving from a prior of 4.38 million to an actual for January of 4.57 million, an increase of almost 0.2 million sales. Released on February 24, 2012, the New Home Sales report showed a steady number of 321,000 for January, down only slightly from 324,000. These reports together show that sales are increasing, which should lead to prices increasing over time. Finally, the FHFA House Price Index was released for December 2011, which also held constant at 0.7% Month/Month. This means that house prices are slowly, but steadily, climbing. Overall heavy foreclosure rates, unemployment levels, and an overall slowly recovering economy will hold rapid recovery back for 2012, but we should see steady but slow recovery in the housing market over the next year.

So what should the average homeowner do? This depends on their situation. The market for buyers right now is obviously very strong. Low housing prices combined with record low mortgage rates make it an opportune time to buy, especially for first-time buyers since they do not have a current house to dump on the market. It is important, however, that buyers do not overstep their means and buy too big just because they can get low interest rates. Also, re-sale potential is important and buyers should look at homes that will be easier to resell in the future to hedge against sluggish price recovery. There are also strong opportunities for current homeowners. Low mortgage rates make it a great time to refinance. Homeowners should keep their long-term goals in mind and shop around for the best rates and terms. Finally, sellers are in the toughest situation. Sellers should try to stay off the market as long as possible to allow housing prices to recover some over the next year. When they do finally have to put their house on the market they should do research on housing prices in the area, back around 90 days. This will allow them to accurately price their house so that once they have to sell they avoid having their house sit on the market for months.

The outlook for 2012 is positive, but cautious. A slow recovering market presents its opportunities and dangers to homeowners who must assess their situation and make the best of what markets hand to us over the next year.

Stephen Padgett

Stephen Padgett

Stephen Padgett is a current junior at the University of North Carolina at Chapel Hill. He is working toward a BA in Economics and Political Science and plans on graduating early in December of 2012. Although he does not know what he wants to do for his career, he is looking forward to an opportunity with Credit Suisse’s Operations Team this summer in Raleigh.

Financially Stephen grew up in a family that preached saving and living below your means. That, in part, translated to his interest in Economics, especially how economics can affect individuals’ financial lives. Through his financial markets class in the fall of 2011, he furthered this interest by analyzing macroeconomic events. Stephen believes that finance, personal finance in particular, is a subject severely left out when it comes to public schooling in this country, and it is a problem that has manifested itself and contributed to many of the problems seen today. He also believes that education is the key to improvement and hopes that through his writings he will be able help people learn about finance, macroeconomics, and how to be financially savvy for the future.

In his free time Stephen enjoys playing and watching sports, wakeboarding, sailing, and country music. At UNC he has participated in Strive for College, UNC Dance Marathon, and UNC Relay for Life.
Stephen Padgett

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