I received this Market Recap from 2012 for the USA mortgage industry from Jessica Regan with GMH Mortgage Services in Camp Hill, Pennsylvania and thought it was interesting and wanted to share it with you. What do you think about their points? Our area has not seen the double-digit year-over-year drops, but we have seen a definite double-digit drop and am encouraged by this summary for 2013.
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MARKET RECAP - 2012
2012 was the year of the price increase.
Indeed, the median price for existing homes rose to $180,800 in December, an 11.5% gain over the median price a year ago. Prices rose steadily through 2012 on increased demand and reduced supply, which has fallen to 4.4 months at the current sales rate.
Low supply, though great for buttressing prices, is impeding sales-volume growth. Existing home sales posted at 4.94 million units on an annualized rate in December, which was below the consensus estimate for 5.09 million units.
That said, rising homes prices are still an overall benefit. Rising prices are shifting more home owners to a positive-equity position. This should help spur inventory growth, as more owners interested in selling won't be constrained by the prospect of bringing money to the table.
This rising equity offers an additional benefit: It raises the “wealth effect.” Home owners naturally feel more optimistic when they're not burdened by being underwater on their most important asset – their home. A rising wealth effect spurs additional spending and investing, which leads to more economic growth.
Additional investment is particularly important. Many economists focus on consumer spending, believing it's the key driver of economic growth. Spending is important, to be sure, but investment is the real driver, because production must precede consumption. In other words, you must produce to consume.
We see a lot of potential in residential investment, especially in the important single-family home sector. Over the past 50 years, single-family residential investment has averaged 2.5% of gross domestic product. We are far below that level today. This suggests to us that the market can support much higher levels of investment.
We are further encouraged by the trend in sales composition.
Many markets across the country have seen double-digit year-over-year drops in distressed sales as a percentage of total sales: Phoenix has seen a 32% drop; Colorado, a 29% drop; South Florida, a 14% drop; and Las Vegas (possibly the hardest hit bubble market), a 24% drop. If this trend continues, and we expect it will, residential real estate investment will move closer to regaining its rightful position as a primary economic driver.
As for mortgage rates, they haven't been trending lower or higher. The way financial markets have been performing lately, we don't see much impetus for rates to go lower. The economy is expected to pick up pace this year, and this is reflected in the higher yield on the 10-year Treasury note.
We might sound like a broken record on this point, but it's worth repeating: We simply see little reward (and more risk) in waiting to buy or refinance a home in this stage of the recovery.
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