Union Bank’s Economic Outlook for the 2013 Real Estate Market

After the tumultuous transition from 2012 to 2013, many of us are wondering what to expect this year — especially where the real estate market is concerned. We already know that housing should continue a modest recovery, but what other changes will we see? Below we highlight some of the major trends industry insiders are predicting for the upcoming months.

Landlords to Rule the Rental Market
Foreclosures and tight financing requirements have caused a surge in the number of renters in America. In a classic case of supply and demand, a shortage of rental housing and an increase in tenants are pushing rents higher — giving landlords the upper hand. In fact, the National Association of Realtors® expects rental vacancy rates to drop slightly from 4 percent to 3.9 percent next year, while rent is expected to rise 4.6 percent.1
As the economy slowly strengthens and interest rates inch upward, some experts predict we may see more renters looking to buy in the next few years. But for now, the rental market will remain strong through 2013. This is good news for anyone looking to purchase residential property as an investment this year.

Home Builder Confidence Strengthening
Home builders are counting on the prediction that more renters will seek to become homeowners sooner rather than later. In somewhat of a contradiction to the strong rental market, economists predict that new housing starts will increase 24 percent and existing home sales will rise 7.2 percent in 2013.2 The National Association of Home Builders/Wells Fargo Housing Market Index, which measures current and future sales expectations as well as buyer traffic, rose 2 points in December. This marks the highest index reading since April 2006.3
This data reflects growing industry optimism that Americans are ready to buy again — a good indicator that the effects of the recession are beginning to wane.

The Decline of Refis
The mortgage world has largely been dominated by refinance loans recently, thanks to attractively low interest rates. Rates are not expected to dip any further, however, and most eligible homeowners have already refinanced. Therefore a slowdown in the refi market appears inevitable.
The Mortgage Bankers Association predicts a $400 billion drop-off in refis in the second half of 2013 compared to 2012, while purchase loan originations should increase 16 percent.4 By 2014, the organization expects the number of purchases to be double the number of refis.5 More purchase loans of course means more homebuyers, echoing the optimism of homebuilders that better financial times are on the horizon.

Stay Informed
Housing and the economy are inextricably linked in a symbiotic and complicated relationship. Whether or not you plan on getting involved in the real estate market this year, keeping an eye on the latest trends and projections will give you a barometer with which to gauge the U.S. economic recovery process — an issue that can directly impact your personal finances.

What are your thoughts?