2012: What to Watch for in Real Estate and Lending

Following a mostly sluggish year in the national housing market, what can we expect from 2012? Is the economy going to take an upward turn? Will interest rates continue to set record lows? Will buyers finally start to buy again?

Here are a few things to keep an eye on in 2012:

The health of the economy. Any discussion about the direction of the housing market has to include the health of the U.S. economy. Unemployment, consumer confidence, retail sales and other sectors of the economy will have an impact on real estate and lending in 2012, but just how much of an impact is yet to be determined.

The foreclosure rate. Foreclosures continue to weigh heavily on the housing market. Although foreclosure activity dropped 3.0 percent to close out 2011, many experts warn that a large “shadow inventory”—bank-owned properties and soon-to-be foreclosed homes that haven't hit the market yet—may cause another wave of foreclosures in 2012.

Home Affordable Refinance Program (HARP). Whether or not the revamped government program HARP—that allows “underwater” homeowners to refinance their mortgages at lower rates—will have an effect on housing is up for debate. However, many mortgage experts are optimistic that HARP will provide relief for those homeowners who really need it.

Home prices and home values. Have we seen the so-called bottom yet? Or will home prices and home values drop more in the coming year? The experts’ opinions are mixed, with some predicting values increasing slightly (0.25 percent), while others are predicting another 3 to 5 percent drop before the year is over.

Record-low interest rates. In 2011, the record-low interest rates were one of the biggest stories. Will this continue in 2012? Although sub-4.0 percent rates may not be sustainable for long—which is your hint to buy or refinance sooner rather than later—almost all experts agree that the rates will at least remain below 5.0 percent throughout the year.

Will the buyers return? Even with the low interest rates, many buyers stayed on the sidelines in 2011. Pending home sales did show improvement at the end of the year, with an increase of 7.3 percent to its highest level since early 2010, but whether or not that trend continues remains to be seen.

The general consensus among most real estate and mortgage experts is that the housing market will stabilize in 2012 or make a slight recovery. However, any gains will probably happen very slowly. ∆

Sources: NAR, RealtyTrac, MacroMarkets, Moody's Investors Service