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How is 2013 Treating the Housing Market?

The market for real estate is showing signs of improvement this year. But this time around, no one can dare to bring up the word ‘boom’ in the equation. The problems of home owners are still largely unresolved, but still, some life in pricing and real estate activity is a welcomed change.

Try to avoid discussing housing problem with words like foreclosure, shadow inventory or up-side down mortgages. These terms are just symptoms; the real problem is that we have more housing units than we have buyers.

Nationally, normal vacant housing rates for owned property (single family houses and condos not included) is 1.5%. It was highest at three percent, but now, we have boiled down to 2.1%. Rental properties are usually 7 – 8 percent vacant. Things got worse when vacancy percentile reached eleven percent, but now, we are back to acceptable levels. Still, number of vacant houses is too much for its demand.

And the one improvement in the percentages that we have noticed comes from the fact that the construction of new houses has decreased to accommodate the fewer number of people interested in buying or renting houses. The needed amount of new housing units any year is 1.5 million, including vacation homes and demolition of old houses. But now, the construction of new houses has decreased to 0.6 million.

This ‘under building’ has been a main aid in housing recovery. Its actual impact was slowed down because much fewer people migrated to US after the recession and the population growth rate slowed down after the recession as well. With no jobs, kids moved back in with their parents many never left the house in the first place.

Housing will not go back to normal anytime soon, construction sector will not ‘boom’ anytime soon either. But they will rise a little, but even that may promote unrealistic expectation, because the moment underwater owners of multiple properties do not have to put out cash, they will sell their properties. This means that too many houses will now go to the market and will limit price hikes.

This environment does not promote too much growth in the real estate industry. The prices will change with tax laws favoring and disfavoring real estate with small booms and bursts occurring periodically. But a 10% increase is far reaching and is a dream in the long run.

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