Analyzing My 2012 Real Estate Predictions

WOW!  It's been a while since I posted here.  It's amazing how easy it is to let things like a blog go unnoticed when you are busy!  However, no excuses - I promise to update this blog on a more regular basis going forward.

I want to write a follow-up post to an article I wrote at the beginning of the year.  The purpose of the first article was to form some predictions for the real estate market in 2012.  We've been through a tumultuous few years, and I was worried that my predictions might end up wildly inaccurate.  However, I actually haven't done so bad!  Let's take a look more closely:

1.  Interest rates will remain at historic lows.

Fixed-rate 30-year mortgage rates, 1/1/12 to present

Not only have interest rate remained at historic lows, they have actually fallen over the course of this year.  With the Federal Reserve keeping their overnight interest rate at essentially 0%, mortgage rates have continued to fall, even with growing demand for mortgage purchases and refinances.  So overall, I would say that my prediction has been quite accurate!  The chart on the left depicts the interest rate on 30-year fixed mortgages, courtesy of Freddie Mac.


2.  Market inventory will continue to fall.
My prediction regarding inventory was right on the money as well.  At the beginning of the year, there were 22,793 homes for sale in the Twin Cities region.  The most recent numbers we have show that there are currently 17,461 homes on the market.   This rapid drop in inventory is pretty closely correlated with my next prediction.

3.  Prices will be flat or slightly higher.
Unlike the last two predictions, which were fairly easy to measure and analyze, this prediction is a bit more nuanced.  In some areas, we have already seen prices increase since the start of the year.  In these same areas, prices have actually been increasing for the better part of a year.  However, there are still some areas that are battling high distressed sales, which has kept prices either flat or slightly falling.  Overall, I'm going to rate this one a wash. 

4.  Foreclosure rates will fall in 2012.
This may be my most off-base prediction of the four I made.  By most measures, foreclosure rates have actualy increased in 2012.  Many analysts assign blame to banks ramping up foreclosure operations after finally settling a massive lawsuit brought by the Department of Justice.  According to Daily Finance Online, foreclosure notices are up 6% compared to the beginning of 2012.  For now, I will rate my prediction as a fail.  However, it will be interesting to watch how the foreclosure rate changes over the next few months.  The "shadow" foreclosure market has been the elephant-in-the-room for some time, and real estate professionals are watching very carefully moving forward. 

Conclusion:  At the end of the day, I didn't do too bad!  Overall, the market has continued many of the trends we've seen over the last year.  Watch back for more predictions!