Sellers Start Your Engines: 2013 Could Be Your Year

For the last few years, home sellers have been frustrated by sluggish market conditions: Buyers sat on the sidelines, waiting for home prices to stop falling. Homes stayed on the market for months without so much as a nibble. Sellers had to take any offer they could get, never knowing when the next one would come along.

But that was then and this is now. In most parts of the country, 2013 will be a great time to sell a house. Here are six reasons why.

1. Inventory Is down in Most Markets

Housing inventory has declined in almost every major city in the country. As a result, home buyers in 2013 will have fewer options than in previous years. This works to the seller’s advantage.

Each month, Realtor.com publishes a monthly housing summary with data and trends for 146 metro areas across the United States. Their latest report, published on Valentine’s Day, included data through the end of January 2013. According to the report, the number of homes listed for sale on Realtor.com has dropped in 143 of 146 metro areas.

This means there are fewer homes for sale in almost every housing market across the country. In some cities, inventory has dropped by 50% or more. This is true for parts of California and other cities that piled up huge inventory surpluses during the housing crisis.

All of this bodes well for home sellers in 2013. It means there will be fewer competing properties on the market at any given time. It also empowers sellers to set (and justify) higher asking prices.

2. Most Housing Markets Have Rebounded

In the immediate wake of the housing collapse, home buyers were afraid to enter the market. And rightfully so. Who wants to buy a house at a time when prices are plummeting? But the general consensus now is that most local housing markets have hit bottom, and are now on the rebound. This has been widely reported in the news, of course, which increases confidence among home buyers and sellers alike.

But buyers aren’t just feeling confident about the market – they’re also feeling a sense of urgency. They’ve heard that homes are selling faster these days. They know there is more competition for fewer properties. In short, the buyers’ market mentality is fading. Some cities, like many in California, have completely flipped and are now sellers’ markets. We expect this trend to spread eastward through the remainder of 2013.

3. Home Prices Are Rising in Most Cities

According to the latest release of the S&P/Case-Shiller Home Price Index, home prices in the U.S. rose 6.8% between December 2011 and December 2012. But that’s just the national average. Prices have risen by double digits in many cities across the country.

As Bloomberg pointed out: “The S&P/Case-Shiller index of property values increased 6.8 percent from December 2011, the biggest year-to-year gain since July 2006…”

The year mentioned in that quote is significant, because the housing crisis came to a head in 2008. Stated differently, U.S. home prices recently had their largest year-over-year gain since before the housing collapse. We expect this trend to continue through the rest of 2013.

This helps people home sellers in two ways:

First, it creates a sense of urgency among home buyers. They know that if they postpone the purchase by a few months or more, they could end up paying more.

Rising prices have also pulled a lot of underwater homeowners above water, for the first time in years. Zillow recently reported that nearly two million homeowners were “freed from negative equity” last year. This puts them in a better position to sell, if they choose to do so.

4. Mortgage Rates Should Remain Low in 2013

Earlier today, Freddie Mac reported that the average rate for a 30-year fixed mortgage fell to 3.51%. That’s near a historical low. More to the point, mortgage rates are expected to remain low through the rest of 2013. Freddie Mac’s chief economist recently issued a forecast predicting a gradual rise toward 3.75% by the end of 2013. Low rates will continue to pull buyers into the market, as they have over the last few months.

5. Mortgage Rules Finalized, Postponed Until 2014

The Dodd-Frank Act required the creation of new mortgage rules to prohibit certain high-risk lending practices. They are collectively referred to as the qualified mortgage (QM) and qualified residential mortgage (QRM) rules.

Mortgage lenders and analysts expect that these new rules will make it harder for some borrowers qualify for financing. Whether that’s true or not remains to be seen. But it’s largely a moot point until 2014. The Consumer Financial Protection Bureau (CFPB) finalized the rules last month, scheduling them for a January 2014 implementation. Sellers won’t have to worry about these rules reducing the buyer pool anytime soon.

Editors note: A subset of the qualified mortgage rule will take effect in 2013. It is known as the Ability-to-Repay rule. But this rule simply requires lenders to verify the borrower’s financial means. Thus, we do not expect it to constrict lending in a significant way. This was one of our “Top 5 Mortgage Stories for 2013.”

6. More Jobs Mean More Buyers

Up to this point, we have focused on housing-related factors, and how they will make 2013 a good time to sell a house. But there have been improvements within the broader economy as well. Job growth is one of those areas.

In 2009, during the worst of the recession, the nation’s unemployment rate topped out at 10%. At last month’s reading, it had fallen to 7.9%. That’s still high by historic standards, but it’s clearly moving in the right direction. Job growth puts more people in a position to buy homes. This increases housing demand and makes life easier for sellers.

By all accounts, 2013 will be a good time to sell a house for many homeowners. And if the current trends carry through this year, 2014 could be even better.

Disclaimer: This story contains forward-looking statements about home prices, mortgage rates, and other real estate market conditions. These statements have been provided for illustrative purposes and do not constitute financial advice. We make no claims, guarantees or assertions about future economic conditions.