What to Expect for Real Estate in 2012

Although many people continue to predict the “bottom” of the real estate market, it is essential to understand that the foreclosure crisis started to surface approximately 6 years ago. To think that the market has not yet reached bottom is a bit farfetched. Six years later our focus should not be on when the bottom is coming (when it probably has already occurred), but instead on how much progress will be made in 2012.

Let’s examine what to expect for the real estate market throughout 2012.

Unemployment and the Job Market

Despite the high number of foreclosure properties on the market and low interest rates, many potential homeowners and investors avoided buying a home. But why? Many avoided buying a home due to a lack of confidence not only in the real estate market but in the United States economy as a whole. With the high unemployment rate and the low job creation, many people were simply too skeptical to invest.

However, a recent report shows that 200,000 jobs were added in December of 2011, surpassing analyst expectations. It appears as though 2012 may be the year that starts a renewed confidence in the U.S. economy and the job market, which could lead to more people buying homes.

Rental Demand and Rental Properties

Throughout 2011 we saw a significant increase in rental demand and a drop in rental vacancies. As a result, rental prices skyrocketed. Although some investors took advantage of distressed properties that were on the market and turned these properties into rentals, the investment rate was not nearly enough to offset the number of homes undergoing the foreclosure process. As a result, major lenders like Fannie Mae and Freddie Mac are planning to take foreclosure properties and turn them into rentals in an effort to alleviate the foreclosure inventory while also providing a stream of revenue. Therefore, in 2012 there will more than likely be more foreclosures turned into rental properties.

Foreclosure Properties and Mortgage Rates

Everyone knows that there is a large number of foreclosure properties, including everything from government foreclosure to bank foreclosures, on the market. These foreclosure properties are often listed for up to 60% below market value, which inevitably leads to a decline of home prices. Throughout 2012 we expect to continue to see homes undergo the foreclosure process, thereby adding to the foreclosure inventory. However, we also expect investors to regain their confidence and start removing many of these distressed properties from the market.

Along with the foreclosure inventory that will continue to grow (at least throughout the first part of the year), interest rates will more than likely remain relatively low as well. Analysts suspect that mortgage rates will remain under 5% throughout much, if not all, of 2012.

The combination of foreclosure properties and lower interest rates coupled with an increase in consumer confidence could definitely lead to a renewed interest in real estate. As a result, 2012 could very well be a significant turn in the real estate market that leads to noteworthy progress.

The Local Real Estate Market

We all noticed in 2011 that real estate market progress greatly depended upon location. Some cities, such as Washington, D.C. started to show signs of improvement. On the other hand, states with judicial foreclosure procedures like Florida remained behind. Throughout 2012 we will more than likely see some local real estate markets making huge progress toward recovery while others may remain more stagnant. Therefore, when considering foreclosure investing or building a new home it will continue to be essential that buyers closely examine the local real estate market before making a decision.

In conclusion, there are some great things on the horizon for 2012 when it comes to the real estate market. However, consumer confidence plays a major role in whether the real estate market progresses or remains stagnant. If jobs continue to be added and the unemployment rate starts showing signs of significant progress, then we could see many more people (including investors) purchasing homes and contributing to real estate market recovery.


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