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Three Market Constituents Contributing to Lofty Spring Expectations

One of the most promising aspects of our currently temperamental economic recovery is the housing sector. Long credited with the downturn of our financial standing, the housing industry is now serving to promote economic growth. Residential development contributed 0.4 percentage points to our gross domestic product (GDP) in the last four months of 2012, culminating in an upward trend. The recent transition into 2013 has witnessed similar growth as residential investment continued to expand.

Housing starts increased to an annualized rate of approximately one million. This return to normalcy indicates a 47 percent increase over this time last year and the largest housing start increase in over 20 years. Encouraging housing start rates suggest that this upcoming buying season will begin in earnest.

Complimenting strong home start rates, are three additional housing market constituents that may help us further strengthen the housing sector. Home sellers, investors and first-time buyers will all play an integral piece in determining the immediate future of the industry, particularly this spring.

Home Sellers

Homeowners, with the intentions to sell, are currently faced with two impending challenges: possessing sufficient equity in their property to use as a down payment on a future home, as well as obtaining a qualifying credit profile. Statistics suggest that approximately 45 percent of all mortgaged homeowners have insufficient equity, meaning they owe more than their home is worth. The recent housing sector improvements, however, have served to reestablish lost equity for many of the hardest hit residential neighborhoods. Returning equity could play a pivotal role in this spring’s buying season.

An increase in sufficient equity could alleviate the current supply and demand problem, as more owners would be inclined to put their property up for sale. In turn, sellers become market constituents, facilitating increased demand.

First-time Buyers

The recent recession served to stifle the development of houses, as young potential buyers were forced to seek residence with their parents and double occupancy became a common practice. More recent statistics, provided by the U.S. Census Bureau, reveal that a positive trend in housing starts from the end of 2012 will continue into 2013. The most promising trend in housing development is seen in multi-unit properties. As new rental properties continue to pace the market, prices are increased, making the prospects of owning a home much more attractive to first-time buyers.

First-time buyers, the second of three market constituents, entering the market will only increase as incentives continue to promote ownership. Sustained low interest rates add to the financial appeal for current renters to take the next step and buy a home. Market analysts expect a slew of renters to join the ranks of homeowners this spring while they take advantage of historically low interest rates.

Investors

The last of the market constituents responsible for lofty spring expectations are investors. Residential developers are expected to continue driving demand for homeownership in 2013, as they did in 2012. Generating a demand for both short sales and real estate owned (REO) properties; investor contributions serve to stimulate price growth in several markets. Increasing demand for distressed assets will assist in the depleted housing inventory, providing potential homebuyers with more options and balancing the currently uneven market.

A combination of these three market constituents should help bolster the housing sector very soon.

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