Buying or Selling in 2012? Here’s what you need to know.

As published in the News Press

By D. Michael Burke

Dave and Chelsea McNab, originally from Ann Arbor, Michigan, decided to finally purchase their second home in Southwest Florida. After several months of searching for a home, the couple just made an offer on a single-family home in Estero, Florida. Dave McNab doesn’t seem particularly anxious about diving headfirst into the area’s housing market. “I think it’ll probably appreciate, but it’s anybody’s game,” he said. “It’ll be interesting to see what happens.”

Interesting indeed! Here we are in 2012 – six years after our housing market began its downward slide, and zero years into a whole-hearted, full-fledged recovery. Not to worry though. The point is there are definite signs of recovery in Southwest Florida and many of the issues and conditions facing those who enter the real estate market this year can be assessed and even prepared for.

Here’s a rough guide to what home buyers and sellers in Southwest Florida should take note of in 2012.

The year things start to get better?

On the national scene, analysts are hopeful that this is the year home prices finally begin inching upward again. Lawrence Yun, chief economist for the National Association of Realtors, predicts that low interest rates and rising rents will lead to a 5 percent boost in home sales, with prices increasing by about 2 percent. And new housing starts should be 15 percent greater than last year, said David Crowe of the National Association of Home Builders. But according to RealtyTrac, foreclosures are also slated to rise, which could result in a flood of cheap homes on the market that could depress prices for a little longer.

However, the general consensuses is that housing prices are higher now than they were a year ago and inventory is lean, so it looks like we should be poised for some recovery in the Southwest Florida housing market.

FHA vs. Fannie and Freddie: Pros and cons

One of the big housing policy issues of 2011 was the lowered limit on mortgages backed by Fannie Mae and Freddie Mac in October. Congress had voted to decrease the ceiling of these loans, which are eligible for lower interest rates, from $729,750 to $625,500 — a crucial difference in a market like Southwest Florida. But the upper level was restored by Congress in November, after an intense lobbying effort from the housing industry. The loan limits are now back up to $729,750, but now it’s the Federal Housing Administration, rather than Fannie Mae or Freddie Mac, that’ll be behind those loans. Does that matter? Yes, it is a benefit, in some ways, to the high mortgage balance borrower because loans backed by FHA require a much lower down payment than others.

Lower down payment, lower interest rates — it sounds like a win-win for the buyer. But FHA has some disadvantages, too, particularly the higher price of its mortgage insurance premiums, which can cost up to 1 percent of the loan annually. Borrowers should closely work out the details with their lenders to determine whether an FHA loan really is the best deal for them.

Buyer beware

In the past, if was commonplace for the seller to provide a warranty that protected the home’s appliances, plumbing, electrical systems, and heating and air conditioning were all in good working condition. If those elements turned out to be defective, the seller could be held liable. If a home is sold in “as-is” condition, there is no guarantee about the state of anything in the home. If a pre-sale inspection fails to catch an on-its-last-legs boiler, for example, that’s simply the home buyer’s bad luck.

Those who are about to settle on a home do have a few options. One is to hire a buyer’s agent who will carefully examine the property’s conditions. Even better, a buyer could insert an inspection contingency clause that provides them with the right to conduct a home inspection, and then give the seller a list of those items that need repairing or replacing. The seller must then make changes or reduce the price.

Mixed policy issues that may or may not occur this year

There are several other potential policy changes afoot that could seriously affect the Southwest Florida market. One is elimination of the mortgage interest deduction, an action that has a swath of small-government fans behind it. However, in an election year, we will probably not see that happen anywhere. But possibly around the middle of this year, the Consumer Financial Protection Bureau will release a streamlined version of closing documents that should be easier for buyers and sellers to read and understand; the agency is currently testing new versions to determine what works.

The big elephant: Pending budget cuts

But the big elephant in the room is government spending. The debt ceiling talks this summer between President Obama and Congress resulted in hundreds of billions of dollars in cuts to federal spending that are already on the books — $460 billion to the Defense Department alone over the next 10 years. They won’t take effect until 2013, but that budget will be out early this year.

In a market like Southwest Florida, cutbacks play a significant role in home buyers’ mentalities. People don’t buy houses if they feel threatened; they want to stay in place until they feel okay to buy. Homes at the lower end of the market — rentals, condos and townhouses — probably won’t be particularly affected, but bigger houses may face a standstill in the market.

Of course, there is still no denying the activity we are seeing in the market like a jump in pending home sales as well as decreased inventory. Interest rates will continue to be favorable, thus making the purchasing decision even easier. The best thing you can do as a buyer or seller is to retain the best representation you can get. You need to find a Realtor who understand the Southwest Florida market and can help you navigate through local changes as well as national changes that may affect our market.