What is the 2013 housing market going to look like? A recent article by Forbes discusses what 2013 will bring for the housing market and the slight recovery we will see.

The 2013 housing market will improve moderately, but nobody will mistake this for a boom. The gains in activity and prices will be a welcome relief, but will leave many homeowners still underwater.

The usual way of discussing housing problems is misleading. Foreclosures, short sales, shadow inventory, upside-down mortgages are all symptoms. The fundamental problem that we have is an excess supply of housing units.

The normal housing vacancy rate for owned property (single family houses and condos not in the rental market) is around 1.5 percent nationally. Our high was three percent, but we are now down to 2.1 percent.  Rental properties are normally about seven to eight percent vacant. (Local norms may be higher or lower.) We reached a peak of 11 percent rental vacancy a few years ago, but have improved to 8.6 percent in the latest observation.  Despite recent gains, we still have too many houses for the current level of demand.

(Data note: these data are a little soft. They do not exactly match vacancy information from other sources, such as the decennial census. They should be taken as a general magnitude, not high fidelity information.)

The improvement we’ve seen recently results from a simple phenomenon: construction of new fewer housing units has been less than the growth of demand. Last year total units (single family houses plus the number of apartment units) ran just over 600,000. In the 2013 housing market, we’ll probably build about 750,000 units. At the peak of construction in 2005 there were 2.5 million units built. We need about 1.5 million new units per year to accommodate population growth, the desire for vacation homes as well as demolition of old units. That, too, is a soft number. The true annual need may be 1.4 million or 1.6 million, but it was never 2.5 million nor 0.6 million.

Our recent under-building has been the greatest aid to housing recovery. It did not act as fast as we might have expected (as fast as I actually had expected), because the recession slowed population growth, from both a smaller birth rate as well as less net migration from abroad. In addition, the population we did have used fewer housing units per person, as adult children moved back in with their parents. Slow improvement in the job market means slow movement of kids away from their family homes, but even though slow, the movement is in the right direction.

It’s too early for housing starts to get back to normal—and we certainly will not see above-normal construction anytime soon. But the 2013 housing market will probably see over one million total housing starts. This will be a substantial percentage gain over 2012, but remember that a 30 percent gain from diddly squat is still not too far away from diddly squat.

Home prices will rise in the 2013 housing market, but only modestly. The most recent data suggest that national average housing prices are rising by roughly five percent annual rate. That’s too optimistic a projection for the next few years, however, because there are many owners of multiple underwater properties who will sell as soon as they don’t have to lay out cash. That increased number of houses on the market will limit price hikes.

Business cycles aside, there is not much reason for housing price to appreciate by more than three percent plus inflation, or about five percent in this current environment. Periodic booms and busts will push price gains above or below trend, and a change in tax laws that favors or disfavors real estate will cause one-time price changes. Ten-percent appreciation expectations are fanciful on a long-run basis.

Businesses in the home construction supply-chain should prepare for a nice increase in sales volume in the 2013 housing market, which will bring the usual boom-time challenges: finding good workers, ensuring an adequate supply of product from vendors, securing the working capital needed to grow production. (See my article on vendor performance and my video about working capital for growing businesses.)

Apartment investors (and landlords of single family homes and condos) will find that their little boom does not strengthen much further. Rents have risen so much that owning is becoming cheaper than renting in many cities. Add in the expectation of price appreciation and we’ll soon see renters itching to buy their own homes. Times will not be hard for landlords, but they should not project further gains beyond what they secured in 2012.

Read entire article on the 2013 housing market here: http://www.forbes.com/sites/billconerly/2012/10/08/real-estate-forecast-2013-the-housing-market/

Are you looking to upgrade into a larger home and rent out your current home?  Make sure to check out these helpful tips to renting your home and protect your property.

Find a Good Tenant – You can find tenants by advertising in local newspapers, both in print and online. Also spread the word through friends, relatives and coworkers you are renting your home.

Ask potential tenants to fill out an application form, listing their basic information: name, employer, salary, previous landlords and references. You’ll also need their Social Security number and signed authorization to check credit reports and criminal history. If you hire an online agency to provide background checks, make sure it is accredited by the Better Business Bureau.

Do your own background checks by when renting by:

• Pulling credit reports. You can conduct your own research through one of the credit reporting agencies — Equifax, Experian or TransUnion — as long as you follow the guidelines of the Fair Credit Reporting Act, or FCRA.
• Checking criminal history. Search state and local records online or find an agency. Landlord.com offers tips on conducting tenant screening.
• Checking references, contacting employers and talking to previous landlords.

Determine How Much Rent to Charge – Get an idea of rent amounts by checking newspapers, online resources or neighborhood rental signs. Be realistic about rent levels. The rent may be lower than your mortgage payment, but if you want to find a tenant, the rent must be comparable to what’s in the market.

Protect Your Rights with a Lease – Make sure to have a written lease so both parties understand their rights and obligations when renting.  A good lease complies with fair housing, rental, tenant and insurance laws of your region.

A lease should spell out the following:

• Lease term: A month-to-month lease offers more flexibility if you are selling, while an annual lease provides more stability if you are holding on to the property.
• Security deposit, usually one month’s rent or more
• Rental due date and late penalties
• Repairs and who’s responsible for what
• Routine upkeep and maintenance responsibilities, such as lawn care
• List of tenants
• Rules of behavior, including noise levels, neighborly conduct and smoking
• Pet policies and related deposits
• Who pays homeowner association dues
• Association rules that the tenant must follow
• Arrangements for showings, if you plan to put your home on the market while it’s being rented
• Eviction terms, such as not paying the rent or damaging the property

Protect Your Property with Insurance – Protecting your property with the correct insurance policy is extremely important. You need a different policy if you’re renting a property to a tenant versus using it as your primary residence.  As a landlord, you’ll need rental property insurance. This policy covers your home’s structure, legal costs, medical expenses and loss of rental income, if repairs are needed. Since you are not responsible for the tenant’s belongings, you should encourage tenants to buy renters insurance.

Hire a Management Company – Fees are charged primarily for two services: finding a tenant, which includes advertising and background checks, and managing the property. The fee for filling a house  when renting can range from 50% to 150% of one month’s rent, depending on the area. Monthly management includes collecting the rent, charging late fees, handling repairs and dealing with early vacancies and evictions.  One big advantage of using property managers is emotional distance.

Prepare Properly for Evictions – You’ll need an attorney to evict a tenant. If the renting tenant doesn’t leave willingly, you can’t just go and move their personal property and kick them out. How much is an eviction? Legal fees alone can range from $300 to $1,000.

Bottom line make sure to research everything to make sure your rental process goes as smoothly as possible.  Nothing can be more stressful than a bad renter.

A few years ago home ownership was a much scarier concept because of the mortgage crises and economic meltdown leaving many homeowners under water.  But hold on just a minute, the great American dream of owning a home is making a comeback and it is the time to buy.

Reports show that in many parts of the country rents are rising while housing prices are falling which makes home buying more affordable.

Here are some benefits to owning rather than renting:

Forced Savings – When paying your mortgage, homeowners are putting money away into their house which they own, instead of paying for someone else’s mortgage if they were to rent.  If you sell your home and your home is worth more than when you bought it, there is a good chance you will walk away cash in your pocket from equity of the home.

Second Line Of Income – If you have a separate entrance, extra driveway space, etc, you can rent that area out.  In some areas, homeowners even rent out small patches of grass for people who want to grow vegetables.

Energy Efficiency – There are many ways you can make low cost improvements within your home to save on monthly utility bills when you buy.  You can add solar panels, install an energy efficient roof or upgrade your air conditioning unit to save overall in utility bills.

Customize Your Area – No need to get approval from your landlord to knock down a wall and make a larger master bedroom.  When owning your home, you have the freedom to do whatever you’d like to change and improve your home.

No Landlord – Sometimes when renting the landlord may be forced to evict you should he sell the home, rent to someone else or otherwise end the lease.  If you have a fixed income, in particular, homeownership is the way to go, especially if you plan to stick around for a while in that area.

Ready to buy your new home?  Contact The Lawhead Team to get started!