Well, another year has passed, and unlike previous years, 2012 was a fairly decent year for the housing market.
After all, 30-year fixed mortgage rates chalked their “lowest annual average in at least 65 years,” per Freddie Mac.
Home prices also increased, which created a number of positives for the market. So what can we expect in 2013? I’ll take a crack at it.
1. Mortgage rates will move sideways
The direction of mortgage rates always seems to top the list, largely because tracking them is about as fun as gambling.
Currently, the 30-year fixed is averaging an amazingly low 3.35%. Back in January, it averaged 3.91%, a rate most thought wouldn’t go any lower.
We continued to be pleasantly “surprised” in 2012, but I don’t see that trend continuing in 2013. Sorry folks. This may be as good as it gets.
Look for mortgage rates to stay close to current levels, though there may be some ups and downs in the first half of the year as uncertainty looms.
In the latter half of 2013 expect mortgage rates to rise, though not by any material amount.
2. Home prices will rise slightly
While mortgage rates could tick higher as the year progresses, home prices should also extend their recent rise.
They already appeared to hit bottom in many metros throughout the United States, though some cities may experience further declines before things turn around.
Either way, don’t expect home prices to rise at their current clip. A panel of 107 economists polled by Zillow predicts home prices will rise just 3.1% in 2013.
That compares to a 4.6% rise this year, something that doesn’t appear to be sustainable moving forward.
However, that could change, and economists still see prices rising at a healthy three percent annual rate through 2017.
3. The mortgage interest deduction will be altered
House values aren’t necessarily safe at all price points. There’s a great chance some kind of change will come to the hotly contested mortgage interest deduction (MID).
It’s unclear what that change might be, but there’s a decent likelihood it could limit deductions to just $500,000 in loan amount.
If that’s the case, higher-priced homes could actually experience some depreciation next year.
But only time will tell on that one…
4. The Mortgage Debt Relief Act will be extended
There’s also a lot of fear surrounding the expiration of the Mortgage Debt Relief Act of 2007, which has been extended each year since inception.
But with the fiscal cliff looming, there’s been more uncertainty about its future.
Still, with millions of short sales on standby, it’s unlikely the IRS rule that forgives homeowners for selling short won’t be extended.
If it’s not, the housing market will surely be rattled, with less harmful short sales quickly turning into a nasty flood of foreclosures.
That would throw everything out of whack, and result in home price declines.
5. Housing inventory will continue to be tight
Speaking of home prices, any price movement will likely be limited by a continued lack of inventory.
If you haven’t looked at available homes for sale lately, I’ll save you the time and effort. There is NOTHING out there, at least in desirable areas of the country.
Don’t expect a flurry of sellers to appear in 2013 either. Why sell on the way up if we’re just beginning to experience the start of a long recovery?
6. Refinances will slow, purchases will rise
While purchases might not go haywire in 2013, they should represent a larger share of the mortgage market as refinancing wanes.
Let’s face it; most homeowners have already taken advantage of the low interest rates available, and with rates predicted to hold steady or even rise, it would be silly to expect similar volume in 2013.
The MBA sees refinance volume falling from $1.2 trillion in 2012 to $785 billion in 2013, while purchase activity is slated to rise from $503 billion to $585 billion.
In other words, the total mortgage market will contract fairly significantly in 2013.
7. Mortgage layoffs will rise
As a result of lower loan origination volume forecasts, a decent number of those who were hired for the refinance boom will likely need to be transferred or laid off.
Still, there are a handful of mortgage companies that are expanding, so opportunities will present themselves in the industry.
Old names like Nationstar Mortgage and Impac Mortgage are growing rapidly, as are newcomers like PennyMac, which is essentially a reincarnation of Countrywide.
8. FHA will tighten lending standards
This isn’t so much of a prediction as it is a reality, though it’s not entirely clear what changes may come to the under-pressure FHA.
It already announced a few changes for FHA loans in 2013, including higher mortgage insurance premiums, higher down payment amounts for certain loans, and higher credit score requirements.
New FHA borrowers may also be subject to paying mortgage insurance for as long as the FHA insures the loans, which would increase the true cost of such mortgages considerably.
9. More previously foreclosed borrowers will take out mortgages
Now that some time has passed since the mortgage crisis, borrowers who were previously foreclosed on will be eligible to get back in the game.
After all, Fannie and Freddie only require a five-year waiting period, and the FHA only requires three years to have passed.
This means many of those who walked away or were simply foreclosed on will be able to purchase new homes, assuming they have steady employment and improved credit scores.
Hopefully more homeowners will get it right this time around…
10. No more mortgage assistance will be granted
Lastly, I don’t expect any new assistance to arrive for at-risk homeowners. It seems the government has used all the weapons in its arsenal, including the FHA streamline refinance, HAMP, HARP II, HAFA II, etc.
Not to mention the artificially low mortgage rates, thanks to aggressive Fed buying of mortgage securities.
There have been plenty of stirrings of a modification or refinance program for mortgages not backed by Fannie or Freddie (or the FHA), but such a plan keeps falling on deaf ears.
The latest proposal would be part of successful fiscal cliff negotiations.
It’s possible, but not probable, especially seeing that so much time has passed since things took a turn for the worse.
If borrowers have made it this far, throwing them a lifeline now seems a lot less likely.
So that’s that. Let’s all hope for the best in 2013. Happy New Year!