Residential Properties LTD.

With New Year’s Day right around the corner, it’s hard not to wonder about what the future may hold. While many of us focus mostly on personal outlooks, the prospects of one industry in particular can have an effect on the entire country; the real estate industry.

Following an inspiring turnaround this past year, many expert analysts are expecting the United State’s housing market to continue its climb in 2013. In its U.S. Economic and Housing Market Outlook report released this month, Freddie Mac has predicted low mortgage interest rates and rising home values to continue through next year, while also forecasting a decline in vacancy rates and refinancing.

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During 2012, home sales, housing starts, and home prices each rose from the previous year, while home values have now appreciated for 13 consecutive months. In fact, since October of 2011 U.S. home values have increased 5.3 percent. Despite this recent increase, home values remain down 19.4 percent from their peak in May 2007, leaving plenty of room for further growth during the upcoming year.

In a recent survey conducted by, 100 economists and analysts were polled with results predicting a 3.1 percent increase in home values during 2013. Freddie Mac was nearly as optimistic, forecasting most U.S. house price indexes to rise by two-to-three percent.

Economists anticipate that increased buyer demand coupled with lower vacancy rates in both the rental and owner occupied markets will help drive up home prices in 2013. New household formations outnumbered newly built homes by nearly a two-to-one margin in 2012, and are expected to continue to outpace construction in 2013, helping to increase home values and rental prices.

This recent and predicted continuation of rise in prices, combined with all-time record low mortgage rates, is motivating potential buyers to take action, driving up sales in the process. Mortgage interest rates are anticipated to remain near their record lows throughout the first half of 2013 before gradually increasing over the second half, although ultimately staying below four percent.

The Federal Reserve’s QE3 monetary stimulus policy and an anticipated decrease in demand for refinancing are the main factors expected to keep interest rates low in the upcoming year. Since QE3 was instituted in September 2012, the Federal Reserve has purchased $40 billion worth of mortgage securities each month, driving mortgage rates to a level not seen in nearly 65 years. With Chairman Ben Bernanke announcing earlier this month that the Federal Reserve will continue buying securities as long as the U.S. unemployment rate is above 6.5 percent, interest rates should remain low until 2016. A drop in refinancing is also expected to assist in holding down interest rates in the upcoming year. With so many homeowners having already locked in low rates, refinancing a second time could cause them to erase what they had hoped to save with their already low rate.

Positive signs can be seen locally, as the Rhode Island luxury market enjoyed a 50 percent increase in number of sales in 2012 from the previous year. The R.I. luxury market has now climbed back to 87 percent of its 2006 peak in terms of number of sales.

Yes, it is true that the market has had several false revivals in recent years. And yes, everything could change in the blink of an eye depending on what happens with the impending fiscal cliff. Still, New Year’s is suppose to be a time of optimism, and there are plenty of reasons to be encouraged by the housing market as we enter 2013.

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Steve Readey

Steve Readey


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