By the numbers

By the Numbers – Real Estate Outlook 2013


Housing will be the shining star of the economy in 2013

While it may not directly effect the GDP (Gross Domestic Product), the Housing Sector is significant. In 2012, the 5% gain in national home prices boosted consumer’s net worth by an estimated $1 trillion, pushing consumer confidence to a 4 year high. Rising net worth typically decreases consumers’ savings, but provides a boost to overall consumer spending. Consumer Spending accounts for 70% of the US GDP.


The Fed will significantly influence mortgage rates

We believe the Fed will keep QE3, part of its plan to spend $40 billion per month in its mortgage buying program, alive through 2013. This took the refinance volume to the highest levels in four years. Changes in the QE3 program could likely raise rates quickly, but that would also mean a much healthier broader economy with improvements in employment, consumption and consumer confidence.


Short sales over foreclosures

Lenders have finally figured out that strategic short sales will be more prudent and profitable. California foreclosures dropped 49.6% in 2012 over 2011. Essentially, finding a quick, optimal solution by getting the loan off the books, taking a smaller loss, and being able to re-lend the capital elsewhere is a win-win for all.


Cash is king
Structuring is queen

Limited inventory and high buyer demand leads to an environment filled with multiple offers and higher sales prices, but all cash offers (over 30% in 2012) still command the market. As this continues into 2013, private lending structures that provide “cash at close’ options to buyers (who could close with cash from private financing and later re-finance from a traditional lender) could become more popular, especially given that interest rates are staying extremely low for now and cash rich investors would enjoy getting a yield-bump with the security of being backed by a (high demand) asset.


Inventory will likely remain tight

Generally, a 6 Month’s Supply of Inventory (MSI) is considered a balanced market. At the peak of the crisis in 2009, California had an MSI of 17 months and now it stands at an historic low of 3 months. The luxury market will continue to see aggressive bidding and multiple offers, while investors and all-cash buyers will compete with soaring demand from first time home buyers in other markets. Inventories of new homes are near 50 year lows and the rise in demand has led to much stronger building activity, with predictions of a 25%-30% rise in single family building starts in 2013 that could bring more inventory into certain markets. In hindsight, our recent under building has been the greatest aid to housing’s recovery.


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