The Overall Condition of the American Real Estate Market

We have gotten used to hearing bad news about the U.S. housing market, but after five years of disappointing numbers, 2013 is revealing a light at the end of the long, dark tunnel. The prognosis for this year is optimistic if not robust, as prices have slowly begun to climb from the historic lows the country experienced when the mortgage bubble burst. This is not only good for the housing market but for the economy as a whole, as the former is inextricably linked to the latter.

A survey taken near the end of 2012 found that real estate agents and brokers agree that the positive indicators that started appearing in mid-2012 are definitive signs of an impending recovery.

The Tides are Changing

The future appears to be bright for the real estate market, and while we will not see prices jump back to previous highs overnight, a slow but steady climb is expected over the next few years. The National Association of Realtors reported a 9 percent jump in home sales in 2012, with home inventory levels hitting a 5-year low at the end of the year. The home price index provided by Core Logic showed a price increase of 8.3 percent over the 12-month period from December 2011 to the same month in 2012. This is the largest increase in the last seven years. Home prices have now increased for 14 consecutive months.

The increase in industry confidence we have witnessed in 2013 is a big change over the survey results of the previous year, when industry professionals predicted a flat year with only a slight increase in transactions and stagnant prices.

Investing in Real Estate

Active Rain predicted that 2012 would be a “GREAT” year to invest in rental properties. The real estate boom in 2012 was largely the result of investors who took advantage of higher yields real estate investments offered when compared to Bonds, CDs and savings accounts, which offered increasingly low interest rates.

Hedge fund managers jumped on the opportunities that came available in 2012, purchasing thousands of properties. The Black Stone Group reportedly purchased upwards of 16,000 homes in 2012, spending an estimated $2.5 billion. The hedge fund is expected to purchase an additional 30,000 properties in 2013. JPMorgan Chase plans to purchase an estimated 80,000 properties in 2013 for $10 billion.

Top investment opportunities for 2013, in order of best to worst, include:

  1. Single-family homes (to sell)
  2. Single family rental properties
  3. Multi-family rental homes

Overall, the data suggests a slight reduction in confidence with regard to purchasing real estate as an investment. New construction condos and single-family homes appear to be an exception. It seems that the market for investors peaked in late 2012, as higher prices and reduced availability have made real estate a riskier investment in 2013. This trend is likely to continue as prices continue their slow and steady climb to pre-crisis rates.

This is not the best news for investors, but it is great news for homeowners who saw their property values plummet back in 2008.