Economists nearly universally agree that the real estate market hit its nadir in 2012. A year later, signs show it has picked up significantly, with greater demands, more sales, lower interest, and fewer underwater mortgages. All indicators point to an improving market – and, in certain cases, better employment opportunities – so what, exactly, is the problem that Businessweek speaks about in its May 16 piece?
Multiple factors, according to Businessweek, have unevenly accelerated the real estate market: more buyers for higher-priced properties, more construction, growing property values that outpace earning power and the economy, and overvalued markets. Overall, the market increased 11 percent from 2012 to 2013 – the greatest gains seen since 2006.
However, certain aspects are troubling:
Gains in hard-hit markets. Although markets like Las Vegas, which saw property values drop nearly 50 percent during the crash, should see gains, these same locations, in Florida, California, and Arizona, as well, are seeing some of the greatest growth. Most metropolitan markets (about 90 percent), Businessweek points out, have seen higher prices, but in certain areas, these increases approach 30 percent over the past year. Exacerbating this are buyers asking for higher-than-listed prices.
Fewer Properties, Less Land. While Businessweek briefly highlights properties being bought, only to be knocked down, investors have taken a significant portion of the market, purchasing single-family homes and foreclosures and turning them into rental properties. Last year, these sales accounted for roughly 20 percent of all transactions.
Some say investors have improved the housing market, but their ability to purchase up properties appears as a loophole. As CNN Money pointed out, banks face new rules regarding foreclosures, while more restrictions have been placed on Fannie Mae and Freddie Mac.
Homebuyers Don’t Know What They’re Getting Into. An April 2013 survey conducted by Zillow shows that homebuyers are surprisingly misinformed. A large percentage don’t even know what an APR is, think buyers need to close with the same mortgage lenders who pre-approved them, don’t know they have the option of lowering interest, and aren’t always aware underwater mortgages can be refinanced.
For the latter two from this list, refinancing underwater mortgages and haggling for a better interest rate end up putting more money in the pockets of homebuyers, who then contribute more to the economy.
Banks Not Holding Up Their End of the Deal. Back in early 2012, the $26 billion mortgage settlement was introduced to help homeowners and those affected by banks’ foreclosure abuses. Yet, as we saw just a few weeks ago, this large group of homeowners was drastically shortchanged. As a result, a New York Times editorial pointed out, Attorney General Eric Schneiderman of New York is pursuing legal action against Bank of America and Wells Fargo.
Not only were these homeowners handed checks that bounced in some cases, illegal practices still appear to be in place, while the banks themselves are encouraging existing borrowers to sell at a loss, or short sale, instead of presenting loan modification options.