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What Will 2013 Bring in Terms of Real Estate?

Hans talks about the fiscal cliff as it relates to real estate in his blog post here

Will 2013 be the time to make your move to a new home? It’s a good question, because there’s a lot of uncertainty surrounding the economy in the near future. And this uncertainty can translate into indecision when choosing whether to put your home on the market and buy a new residence in the coming months.

In my mind, this economic uncertainty is driven by several factors, including the potential for tax hikes and spending cuts as a result of the looming Fiscal Cliff, the capricious future of interest rates, and the general precariousness of the global economy.

There’s been a lot of media coverage about the so-called Fiscal Cliff facing us in the month ahead. When the Jan. 1 deadline rolls around, a predetermined collection of tax hikes and spending cuts is set to go into effect unless lawmakers and the president can agree on an alternative plan to reduce the budget deficit. Slated to expire are mortgage interest deductions, the Mortgage Forgiveness Debt Relief Act, and the mortgage insurance tax reduction.

If policy makers can come up with an alternative to the Fiscal Cliff plan, mortgage interest deductions could be extended, with a positive impact on the housing industry. However, if housing credits, incentives, and deductions disappear, the marginal real estate recovery we’ve seen in recent months could stall entirely.

Taken on its own, the elimination of the mortgage interest reduction would mean taxes would increase for millions of homeowners accustomed to tax breaks, and potentially dampen enthusiasm for first-time homebuyers who wouldn’t reap its advantages. Those who have found relief in the Mortgage Debt Relief Act, which eliminates taxes on mortgage debt that has been forgiven through a short sale or foreclosure, would now see that forgiven debt become taxable income that would to their financial burden – and their potential ability to purchase a new home. And homeowners who are accustomed to writing off their Purchase Mortgage Insurance (PMI) would no longer enjoy that benefit, perhaps resulting in a decline in the number of buyers willing to purchase PMI to cover their lack of 20 percent equity upfront.

In general, some economists believe that if our country heads over the Fiscal Cliff, we may fall into a deeper recession, triggering a drop in consumer confidence. That drop could slow or halt the gradual real estate recovery we’ve seen over the last few months. And if unemployment again rises, fewer jobs will mean less demand for homes and a sluggish market.

While all of this discussion of the Fiscal Cliff has been going on, there has also been much speculation about interest rates. As with the policy changes, what will happen with these rates is also pretty much a guessing game. Rates have been at record lows for a while now, and at some point they are bound to go up. Homebuyers would be wise to take advantage of these low rates while they are still around. A general feeling in the economic community would suggest that rates will remain low at least for the first part of 2013, and perhaps longer, but this is dependent on unemployment numbers and the overall robustness of the economy.

Overriding all of the predictions and analyses regarding the direction the economy will take in 2013, it’s important to remember that at this point, we still just don’t
know
what’s going to happen on Jan. 1. Our lawmakers may yet come up with an eleventh hour solution that will render all of these concerns and arguments moot. And until we know whether the economy is will be sluggish or healthy, no one can be certain what will happen with interest rates. 

The bottom line is that if you are considering buying or selling in 2013, you would do well to keep your eye out for developmentsin these areas of uncertainty and keep in mind the impact they will have on your ability to afford a new home. With any luck, our economy will be headed in the right direction, the real estate sector will continue its recent rebound, and 2013 will be a great year to purchase a new home.

This post is contributed by a community member. The views expressed in this blog are those of the author and do not necessarily reflect those of Patch Media Corporation. Everyone is welcome to submit a post to Patch. If you'd like to post a blog, go here to get started.

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