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2012 Real Estate Market Outlook

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CNN recently published a report that attempted to forecast the state of the real estate market in 2012.  The report summarized the findings from a research company called Macro Markets that covered the viewpoints of 100 industry experts.  The good news is that the market is expected to make a slight recovery, but the bad news is that this recovery will happen at a snail’s pace.

The experts predict that property prices will increase about 0.25% on average in 2012, which compares favorably to their 2011 prediction which forecasted a 2.8% price drop.  Further, although the indicators are heading in the right direction, it’ll be slow going as annualized gains are expected to average just over 1% per year for the next 3-4 years.

The main problem with property prices continues to be the dearth of supply caused by the huge number of foreclosure homes currently flooding the market.  If we include the dreaded “shadow inventory,” the total number of foreclosed homes currently for sale exceeds 5 million. Just to put this into perspective, Freddie Mac expects less than 5 million homes to be sold in 2012.  Simple math tells us that there is about 12 months of housing stock currently available, which is double the amount that is considered healthy.  Thus, it’ll be slow going for awhile.

Another trend to keep in mind is that desirable houses are becoming smaller.  Gone are the days when McMansions were king; in fact, these properties (>2,600 sq. feet) are desired by less than 20% of the current buying market.  Similarly, a recent survey of builders revealed that the average size of homes built in 2012 will be 10% smaller than those built in 2011.

Obviously, the stagnating market presents opportunity for home and rental property buyers.  Not only are prices somewhat depressed, but mortgage rates are still near historical lows.  Thus, the cost of property ownership is as cheap as it has been in decades.  So if you’ve ever thought about becoming a landlord, now would be a great time to finally pull the trigger.

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