Going into 2013, home prices are expected to rise 6 percent driven by steady demand, lower bank-owned (REO) sales, and lower inventory of unsold homes. This is according to CoreLogic's latest report.
The CoreLogic Home Price Index (HPI) increased 6.3 percent in 2012, the largest increase and highest level since 2006. And year-over-year home price increases were more widespread.
This increase in home prices across a broader geographic spread is expected to continue in 2013.
"The two major drivers of improvement in the market have been the decline of real estate owned (REO) sales and less available inventory. The decline in REOs drove a sharp turnaround in home prices, but the impact of the decline will be more muted in 2013.
The major factor driving the market in 2013 is the lack of inventory. Many trade-up borrowers have been locked out of the market because their outstanding loan balance is greater than the market value of their home. Current owners need to sell at prices high enough to extinguish their debt and provide equity for the next home purchase. Until home prices began to rebound in 2012, these borrowers had been effectively locked out and unable to list their homes for sale.
The lock-out phenomenon, combined with the rise in investors converting foreclosures into rentals, led to a lack of for-sale inventory. With home prices rising in 2012 and 2013, tight for-sale inventory will begin to ease.were to improve."
An increase in inventory this year could impact prices, but declining REO sales continue to be good for the market because they typically sell at a 20 percent or more discount. And, these bank owned sales are believed to drive down prices of non-distressed sales by 30 percent.
Despite the improvements though, housing still faces some challenges. First, Housing government sponsored enterprises (GSEs) like Fannie Mae and Freddie Mac, and the FHA are slowly increasing premiums or guarantee fees.
Second, concerns remain over he impact of qualified mortgage and qualified residential mortgage, defined as a mortgage that a household can reasonably be expected to repay. "The main hurdle will be where the cut-offs for loan to value and debt to income (DTI) will be drawn. …Therefore, policymakers need to carefully craft the demarcations, otherwise they risk cutting off large segments of credit supply."
Increasing home prices, according to CoreLogic, would be the best shield against policy uncertainty.
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