“The monthly Case-Shiller house price indexes will show month-to-month declines soon, probably starting with the October report to be released in late December. The CoreLogic Index has already started to decline on a month-to-month basis.” 

Fiserv, another company that analyzes home prices, came to the same conclusion:

“We project a small, short-term price decline for many markets that recently experienced double-digit appreciation.”

This may seem counter to the headlines you have seen claiming home prices are on the rise. However, we must realize that there is seasonality to home price movements. Over the last few years, prices have increased in the spring through the early fall. They then soften throughout the winter. As Calculated Risk reveals:

“This is not a sign of impending doom - or another collapse in house prices – it is just the normal seasonal pattern.”

If you are thinking of selling your home in the next 6-8 months, you should realize that waiting may not ensure a higher price and perhaps may even result in a slightly lower sales price.

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“The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.”

The act also applies to debt forgiven in a short sale. The big question is whether or not Congress will extend it past the December 31st deadline. Forty-one state attorneys general signed a letter urging Congressional leaders to extend the act. In the letter, it is explained:

“Each of our offices receives calls every day from homeowners trying to save their homes or struggling to recover from losing their homes…Congress must act. We urge you to extend the existing exclusion of forgiven or cancelled mortgage debt from taxable income under federal law before it expires at the end of this calendar year.”

The push is on to get an extension. Here are the current bills in Congress:

• U.S. House of Representatives: Resolution 4336 and Resolution 4202
• Senate: Senate Bill 2250

Whether Congress will act in time to extend the act before its expiration is anyone’s guess.

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Supply Is Shrinking

With inventory declining in many regions, finding a home of your dreams may become more difficult going forward. There are buyers in more and more markets surprised that there is no longer a large assortment of houses to choose from. The best homes in the best locations sell first. Don’t miss the opportunity to get that ‘once-in-a-lifetime’ buy.

Price Increases Are on the Horizon

Prices were expected to bounce along the bottom this winter. However, many pricing indices (examples: CoreLogic, FHFA, LPS, Case Shiller) are reporting that prices are continuing to rise.

Rents Are Skyrocketing

Rents historically increase by 3.2% on an annual basis. A study issued earlier this year projects rent increases of 4% for the next two years. Trulia recently reported that rents this year have actually shot up by 5.4%.

Interest Rates Are Projected to Rise

The Mortgage Bankers Association has projected that the 30-year mortgage interest rate will be 4.4% by the end of 2013. That is an increase of approximately one full point over current rates.

Buy Low, Sell High

We would all agree that, when investing, we want to buy at the lowest price possible and hope to sell at the highest price. Housing can create family wealth as long as we follow this simple principle. Today, real estate is selling ‘low’. It’s time to buy.

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“The Mortgage Bankers Associationnoted in a Thursday report that a four-year low in serious mortgage delinquencies and a drop in the percentage of loans in foreclosure for the third quarter suggest fewer homes are part of the shadow inventory that’s always threatening prices and creating market uncertainty.”

This is great news. However, we must realize two things:

• The inventory level is still four-times the normal average
• Foreclosure backlogs still exist in certain judicial foreclosure states

Back in September, we explained that the foreclosure challenge in most parts of the country is diminishing with the major exception being the Northeast. A new report confirms that states in the Northeast are now leading the nation in percentage increase in foreclosure activity. In RealtyTrac’s latest Foreclosure Market Report, it was revealed that:

“The three states with the biggest annual increases in foreclosure activity in October were New Jersey (140 percent), New York (123 percent) and Connecticut (41 percent).”

These same states were rocked by super storm Sandy which will result in a continued delay in these properties coming to market. RealtyTrac’s vice president Daren Blomquist explains:

“We continued to see vastly different foreclosure trends across the country in October, depending primarily on how each state’s foreclosing infrastructure was able to handle the high volume of delinquent loans during the worst of the foreclosure crisis in 2010. Unfortunately the three states dealing with the biggest rebound in deferred foreclosure activity— New Jersey, New York and Connecticut — also had to deal with the devastation to homes inflicted by super storm Sandy. The foreclosure moratoriums being put into effect as a result of the storm will likely extend the already-lengthy time to foreclose in these states, further prolonging a fundamentally sound housing recovery.”

Things are looking better in the vast majority of communities across the country. However, the Northeast should still be looking for prices to soften as Mark Zandi ofMoody’s Ecnomy explained in a recent Wall Street Journal article:

“Some markets are still going to suffer more price declines.”

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CoreLogic, in their latest House Price Index revealed that prices increased by 5% over last year. Yet, prices actually dropped .3% month-over-month (m-o-m). Analytics firm FNC, in their latestResidential Price Index, reported that prices increased 2.3% over the last year but prices remained unchanged m-o-m.

What Does This Mean for Sellers?

Sellers should be excited about the headlines showing price appreciation across the country for the first time in a long time. However, if you want to sell your home in the next 6-8 months realize that there is a better chance that prices will soften than appreciate during that time span. Waiting until the spring for a better price probably makes little sense.

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With house prices inching up and rents skyrocketing, this may be the perfect time to invest in single family residential real estate.

If you do, you won’t be alone. According to the National Association of Realtors’ (NAR)2012 3rd Quarter Metro Area Report:

“Investors…accounted for 17 percent of all transactions in the third quarter.”

More than one out of every six houses sold are purchased by an investor. In the most recent MarketPulse Report by CoreLogic, their Principal Economist, Sam Khater, wrote on the subject in a story titled Roll Tide, or The Rise of the Single Family Rental Market. The major takeaways from the article are:

• The single-family rental market remained very active in the late summer of 2012 with increases in demand, tightening inventory and rising rents.
• Nationally, rental leasing volumes were up every month for two years. In August, they were up 7% over last year.
• Supply was down 11% over the same period.
• This tightness in supply has caused rents to increase.
• Rent growth is expected to increase at a ‘strong clip’ late in 2012 and in 2013.

If a private investor is looking for a great hands-on opportunity, perhaps purchasing a single-family house to rent out makes sense. Check with your local real estate advisor to uncover the opportunities in your region.

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Rental prices usually increase by about 3 percent annually. Trulia just released their Trulia Rent Monitor where they revealed that rental prices have increased dramatically in the last year.

“Nationally, rent gains continued to outpace home price increases in October, rising by 5.1 percent.”

Based on the concept of supply and demand, we believe rental prices will continue to substantially increase over the next few years. The long-run 30-year average increase in rental households is 200,000 each year. Over the next few years, those numbers will more than double to over 500,000 each year. Freddie Mac in their latest report,Multifamily Research Perspectives, projects housing demand going forward.

“Given assumptions consistent with economic growth slightly slower than long run averages, multifamily demand is likely to be in the range of 1.7 million net new renter households between now and 2015.”

The cost of owning a home will begin to increase as both prices and mortgage rates are expected to inch up in 2013. Perhaps now is the perfect time to lock in your long term housing expense by purchasing your own home.

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Yesterday, we reported that the Mortgage Bankers Association (MBA) is projecting that mortgage interest rates will inch up over the next twelve months. On Monday, we explained that many experts are calling for home prices to also increase over the next year.

What Does This Mean to a Buyer?

Here is a simple demonstration of what impact certain changes would have on the mortgage payment of a home selling for approximately $200,000 today:

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“After reaching record lows in 2012, mortgage rates are expected to creep up slowly in the year ahead, the Mortgage Bankers Association predicted.

Rates on the 30-year fixed-rate mortgage are expected to average 3.8% in the fourth quarter of 2012, rising to 3.9% in the first quarter of 2013 and eventually rising to an average 4.4% by the fourth quarter of next year.”

If the MBA is correct, mortgage interest rates could inch up almost a full percentage point in the next year. Tomorrow, we will explain what that means to a potential buyer.

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• Demand Institute Study: 1.75% appreciation
• Urban Land Institute: 2%
• Home Price Expectation Survey: 2.44%
• National Assoc of Business Economists: 2.8%
• Wall Street Journal’s Survey of Economists: 3.25%

All five groups are calling for home values to rise through the end of next year. However, none are projecting that we will hit historic annual appreciation levels (3.6%) that existed prior to the housing bubble.

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