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5 Reasons why the real estate re-boom is about to slow way down

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By all accounts, 2013 will go down as a great year for the housing market. Whether you’re looking at sales or housing starts or prices, virtually every indicator on the real estate market will show at least a 10% year-on-year improvement.

But as noted author, financial expert and real estate attorney Shari Olefson notes, that’s not only to be expected coming out of a trough like 2008, but it also won’t last.

“We started off in 2013 real strong but toward the second half of the year we saw things slow down,” Olefson says in the attached video. “We’ve had almost 3 years of continuous increases and have now had 3 months of sales decreases and slowing momentum,” she adds.

Sales to Stagnate, Price Spike to Slow

Officially, she’s forecasting roughly unit sales of 5.1 to 5.2 million homes next year, on a three to six percent increase in prices, down from about 10% that we chalked up in 2013.

If you’re a buyer, that’s going to be a relief. If you’re a seller or current owner, that’s not good news, especially since Olefson says there are still seven million underwater homeowners in the U.S.

“Prices have gone up by 20% the last two years, but wages have only gone up by about 3%,” she points out.  “Folks just can’t afford to be paying more and more.”

Inventories Stay Lean

Another cog in the real estate wheel that will bode watching will be supply, or more precisely, what Olefson calls “an overall lack of inventory.” There are many reasons why she thinks there won’t be any real improvement in the amount of homes that are on the market, but she notes the expiration of the Mortgage Debt Forgiveness Relief Act is one constraint few people are aware of.

“A lot of our sales, about 15%, have been distressed,” (as in foreclosures, short sales, etc.) she says. “That was the Act that said if you’re underwater and you short-sell a property, you don’t have to pay income tax on the amount that the bank forgives.” With that going away, she says millions of would-be sellers will hold off, and that will impact inventory.

New Construction

For those hoping that builders will fill the supply void, Olefson points out that 2014 will likely only see a modest increase in housing starts, from about 1 million units this year to maybe 1.1 million next year, versus what she considers a normal rate of 1.5 million.

“Luckily though, the little guys are getting back into the game and banks are starting to lend,” she says. “For years, we’ve only had the big companies in there.”

Mortgage Rates

Interestingly, this an area - compared to other issues - that Olefson says won’t be “a huge bottleneck for real estate or a significant headwind.” That’s because, even at 5% for a 30-year mortgage, rates would still be historically low.

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