Real estate: Find opportunity next year
In Money magazine's Make More in 2013, you'll learn what's contributing to a rosier outlook for economic growth, how to get more investment income at a time of super-low rates, and how you can start exploring and how you can start exploring job opportunities again. This installment: Why, as a prospective home seller or buyer, you need to stop sitting on your hands.
After five years of tumult, order and opportunity are finally being restored to the housing market.
Home prices are expected to rise a modest 1% from the fourth quarter of this year to the end of 2013, according to the real estate research firm Fiserv. David Stiff, Fiserv's chief economist, notes that after some choppiness early on, prices should increase 3.4% from the second quarter of 2013 to the second quarter of 2014. In hotter regions out West, you can expect bigger gains.
"Housing is finally turning the corner," Stiff says. "There is no reason to be fearful of further large price declines."
This creates a new playing field for homeowners, who are finally able to sell, as well as would-be buyers who've been delaying a purchase in anticipation that prices would keep falling.
The Mortgage Bankers Association forecasts that more and more house hunters will start coming off the sidelines, with new-home loans for purchases expected to jump 55%, based in dollars, in 2013.
With that increased competition, "the days of buyers sticking it to sellers are over," says Salt Lake City real estate agent Tracie Peay.
Sellers: Don't get too excited just yet. You don't have a viselike grip on this market either. Indeed, for many, it still makes sense to wait to get better prices. This is especially true if you know that you won't be able to break even on your investment by unloading your house now, once you factor in the sales commission and other costs.
That said, don't assume that prices will be off to the races again in a year or two.
Fiserv forecasts that between now and 2017, homes will gain 3.3% a year in value. That's hardly red-hot. But at least the market isn't frozen anymore.
THE ACTION PLAN
Sellers
The price still has to be right
Homes in many markets are selling in a matter of weeks, often attracting multiple bids -- but only the ones that are properly priced. Take San Francisco. Although the city is one of the strongest sellers' markets right now, the average home there goes for 103% of list price, not 120%.
"Buyers aren't going down the road that got so many people in trouble during the bubble," says Dallas real estate agent Mary Beth Harrison.
Focus on the appraisal
Whoever bids on your home will probably finance the purchase. That means any deal is still beholden to a third party.
"You can take the highest offer, but at the end of the day the appraiser has the final say on the value of the home," says David Howell, chief information officer at McEnearney Associates, a real estate agency in the D.C. metro area.
Related: 25 Best Places to Retire
With so much riding on the appraisal -- it can kill an agreement or require renegotiation -- your agent should be present. Harrison has a tip for making sure this happens: "The minute we have an offer, we take the keys off the door to make sure the appraiser has to meet us to get in."
Your agent should also prep a package of pertinent information for the appraiser, says Chicago real estate agent Fran Bailey. That includes the latest comparable sales data and documents detailing any upgrades or renovations to help the seller's cause. "It's part of my job to make sure the appraiser has the correct information," she says.
Buyers
Be ready to deal
With competition heating up, casual house shopping isn't going to cut it anymore. If you are serious about making a move, be prepared:
Three months out. Despite housing's green shoots, getting a mortgage remains incredibly tough. The average FICO credit score for recently denied applications on conventional purchase loans was 729. The score on approved mortgages was 762, with a 21% down payment, monthly payments equal to 21% of household income, and total debt that did not exceed 33% of income.
Related: 10 most affordable cities for homebuying
On the bubble with any of those requirements? Now's the time to burnish your finances. And if you plan to house hunt in the spring, watch your holiday spending.
Deal time. "If you want to buy, you have to be ready to make an offer," says Howell. Plus, your first offer should be very close to your best. "If the house has been on the market for three months or longer, you can be more aggressive," says Bailey. "But if it's a new listing, a low-ball bid will get you ignored."
The Money tracker: What can upset the forecast in the year ahead...
Ben runs out of ammo. Fed chairman Ben Bernanke is lifting housing by buying bonds to keep mortgage rates low. How much longer can he keep that going?
The loss of mortgage deductions. Should the tax break on mortgage interest get cut, that would throw cold water on the real estate recovery.
Sellers sit on the fence. Homeowners could remain on the sidelines as the ranks of buyers grow. In that case, the inventory of homes would shrink even more, lifting prices faster than expected.
Homeowners get bullish. A spate of home construction is already taking place in several major markets. In those regions, the housing stock is likely to stabilize, keeping price gains modest.
Banks loosen their grip. If tight lending standards return to historical norms, realtors argue, the market could see an additional 500,000 to 700,000 home sales next year.
Employer confidence rises. Since jobs are the engine of the housing market, a pickup in hiring later in the year, which economists are predicting, could accelerate a real estate rebound in the second half of 2013.
Make more in 2013:
The economy: What to expect in 2013
Investing: Where to make money in 2013