By all accounts, real estate is returning to a state of normalcy in 2012. While the improvement in the overall economy has not hit all the marks we would have hoped for by this point, the real estate industry is in the midst of a much needed revival. Real estate professionals are lauding the return of buyers to the market and home values, as a result of scarce inventories generating multiple bids on available properties, are rising.
Additionally, thanks to government and regulatory programs making refinancing and principal reduction options accessible to distressed homeowners and homeowners facing negative equity, the deluge of foreclosures forecast by analysts is being mitigated. A new set of circumstances emerging have sparked the current renaissance of the industry and are worth noting, including:
- New attitude on short sales. Once the bane of loss mitigation efforts, lenders now embrace short sales as a panacea to slow the flow of distressed properties into eventual REO.
- A prolonged low interest rate environment. Consumers can’t afford a home unless the cost of borrowing remains affordable. Recent actions by the Federal Reserve to keep interest rates low and stimulate the economy will ensure that low cost mortgages remain available. Moreover, a welcome side effect of the previous housing downturn is that it created a new class of more informed, more cautious, and better-qualified borrowers that can fully leverage the advantages of low interest rates while keeping risk levels low for lenders.
- The decline of investor influence on the housing market. Rising home prices impact both distressed (foreclosure sales and REO) and non-distressed properties, and are squeezing the once substantial returns enjoyed by all-cash investors. Average consumers comprise an increasing percentage of purchases today, bringing more equilibrium to the market by stratifying the types of buyers participating in it.
- The swinging pendulum of renting versus buying. Today’s low cost mortgages and home prices still at reasonable levels, in contrast to rising rents in major U.S. markets, seem to make more sense for many consumers over the long-term. The important caveat, however, is if consumers can qualify for those affordable mortgages under existing tight underwriting conditions. Recent events point toward a thawing in underwriting constraints as GSEs relax documentation requirements to process mortgage applications.