Lessons from the Pros

Featured Article

What Does the Crystal Ball Reveal for Real Estate in 2012?

I may not have a traditional crystal ball, but I do have access to data and smart economists.

We know that our economy isn’t “RECOVERED,” but I do believe it’s moving in the right direction. We know that any developments in the European debt crisis have had and will have effects on the American markets. We know that this being an election year will also have an impact. Yet, many think that housing will continue an up-swing because “affordability” is the name of the game.

Lawrence Yun, Chief Economist for NAR (National Association of Realtors), says that “housing affordability conditions, based on the relationship between median home prices, mortgage interest rates, and median family income, have been at a recorded high this year. Very favorable affordability conditions will dominate next year as well, which will probably be the second best year on record dating back to 1970. Our hope is that credit restrictions will ease and allow more home buyers to take advantage of current opportunities.”

The expectation is that existing home sales will see a 4-5 percent rise in 2012. Yun also said, “If we could maintain sound and reasonable mortgage underwriting standards, the market would be able to avoid a future big boom and bust cycle, but mortgage standards remain overly stringent.”

It’s now two and a half years after the recession (ha-ha) and the housing market continues to struggle, but there are some recent stats and surveys that indicate a change could be around the corner for 2012.

Let’s take a look at some of the current stats.

Real Estate predictions for 2012

The Case Shiller Index shows declines in home prices for the fourth quarter of 2012. The only good news is some improvement in the annual rates of change in home prices, with 14 of 20 cities and both composites seeing their annual rates of change improve. This according to David M. Blitzer, Chairman of the Index Committee at S&P Indices.

Data for Pending Home Sales: The Pending Home Sales Index is a forward-looking indicator based on contract signings. It increased 7.3 percent to 100.1 in November from an upwardly revised 93.3 in October and is 5.9 percent above November 2010 when it stood at 94.5. The October upward revision resulted in a 10.4 percent monthly gain.

The last time the index was higher was in April 2010 when it reached 111.5 as buyers rushed to beat the deadline for the home buyer tax credit. The data reflects contracts but not closings.

Data for Existing Home Sales: The latest monthly data shows total existing home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, increased 4.0 percent to a seasonally adjusted annual rate of 4.42 million in November from 4.25 million in October, and are 12.2 percent above the 3.94 million-unit pace in November 2010. A healthy real estate market would have sales at over 5 million, so we aren’t there yet.

What does the real estate market look like for 2012?

New Home Sales Data: Sales of newly built, single-family homes edged up 1.6 percent to a seasonally adjusted annual rate of 315,000 units in November, according to newly released figures by the U.S. Commerce Department. This marks the third consecutive monthly gain in new home sales and the fastest pace of such activity since April.

“With today’s report, we have now seen three straight months of modest gains in sales, starts and builder confidence in the market for new single-family homes,” said Bob Nielsen, chairman of the National Association of Home Builders (NAHB).

Mortgage Application Data: “Mortgage application activity declined over the last two weeks, even after adjusting for the typical seasonal decline in activity. Refinance applications continue to account for the vast majority of total application volume, with the refinance share reaching its highest level in 2011. As part of legislation to extend the payroll tax holiday, guarantee fees for loans purchased by the GSEs and mortgage insurance premiums for FHA loans will eventually increase. Given the announced implementation of this change, we do not expect to see an impact on mortgage rates and application activity until at least February,” said Michael Fratantoni, MBA’s Vice President of Research and Economics.

Things are looking up and there are still great opportunities – our next online Professional Real Estate Investor class has been scheduled for February. Hope to see you all there.

Great Fortune,

– Diana Hill dhill@tradingacademy.com

DISCLAIMER This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. Reprints allowed for private reading only, for all else, please obtain permission.

Join over 170,000 Lessons from the Pros readers. Get new articles delivered to your inbox weekly.