The US real estate market appears to have undergone somewhat of a recovery in 2012, with interest in property investment gathering momentum. However, it is important not to be bullish and according to the Global Property Guide, more has to be done in the residential sector in particular to encourage further activity.
It seems the task has fallen to Barack Obama to tackle the country's housing problems, but before the election, the renowned economist Joseph Stiglitz told Reuters there was concern over a worrying lack of discussions and focus on this issue. "It is one of the things that precipitated the crisis," he said. "In some sense, they don't want to offend the banks - The banks have been a major problem to doing something about the problem."
There is also the problem of how to drag the sector out of the doldrums without the meddling of the US government. Removing White House involvement could disrupt growth in the sector and according to Mr Stiglitz, a plan must now be put forward to facilitate such a retreat. Jed Kolko, Trulia.com's chief economist, explained in the Huffington Post that any such strategy must tackle four key points: Inventory and home prices, home ownership versus renting, new mortgage rules, and mortgage interest deduction cuts.
The first question many will ask in 2013 is whether home prices will be able to reach a level high enough to encourage new construction or homeowners to sell existing property. This comes on the back of rock bottom house price indices in 2012 and indicators of higher property values in the future. The regime of affordable housing is also about to end in the US, which could slow market activity once again.
President Obama must also act to encourage home ownership, which Mr Kolko predicts will decline in 2013, especially in expensive markets like New York, San Francisco, Miami and Seattle. With people still feeling the pinch of the financial crisis, as house prices rise, many turn to rental property. Until incomes can keep pace with increasing costs, any growth is unsustainable and residents will be unable to get onto the property ladder. However, this creates opportunities for investors, who can take advantage of burgeoning rental markets in the country.
Tighter refinancing and mortgage interest deduction rules could also impact upon activity. The Dodd-Frank Act created by the Consumer Financial Protection Bureau is designed to set new mortgage standards that will create a balance that protects homeowners. This will be achieved through stricter lending standards, as mortgages issued and found to be beyond the ability of the holder to repay impact upon lenders.
Mr Kolko concluded that mortgage interest deduction cuts will also be needed to get the country's economy back on level footing and bring sustainability to the property market.