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Housing market predictions for 2012

While we're not out of the woods yet, as we end the year it's clear that the nation's real estate balance sheet is slowly turning around.

The official unemployment rate dropped to 8.6 percent, even as the labor participation rate dropped to about 62 percent. But the better news is that the U-6, which is the broadest measure of unemployment, fell below 16 percent for the first time since the Great Recession started.

If you want to turn around the housing market, you have to create jobs that pay enough for someone to buy a home and afford their mortgage, real estate tax and insurance premium payments.

"Most Americans expect no improvement in their personal financial situation in the next 12 months and will likely remain wary about undertaking the significant financial obligation associated with homeownership until their view of their income, expenses, and job security heads in a more positive direction," noted Doug Duncan, vice president and chief economist of Fannie Mae.

FHA's financial condition worsened in October
Few homeowners underwater, but number is still high

But in a surprising turnaround, Fannie Mae's November National Housing Survey found that homeowners believe that their home value will rise 0.2 percent over the next year. This is the first time in six months that home price expectations moved from negative to positive territory.

"Though their home price expectations have become slightly positive, consumers remain concerned about the direction of the economy and continue to view their household finances as being relatively flat," Duncan added.

Another boost to the housing market is that mortgage interest rates remain under 4 percent for a 30-year fixed-rate mortgage. If you're willing to look at a 15-year mortgage, you can find one for about 3 to 3.25 percent. Some lenders are now offering 10-year loans at 3 percent or less. These interest rates are bouncing around at a historic low level, saving homeowners who can refinance hundreds or thousands of dollars per year.

And while existing home sales haven't budged much on a national level, and the new construction industry remains moribound, there are individual markets where homes are starting to sell. That's good news for real estate agents, appraisers, attorneys, mortgage lenders, escrow and title companies - all of which benefit when the real estate industry is functioning normally.

Looking forward, the biggest indication that the housing market might begin to normalize is that the number of homeowners who are seriously delinquent in their loan payments is shrinking.

At the height of the Great Recession, nearly 7 percent of homeowners were at least 60 days late on their mortgage payments, according to TransUnion, a Chicago-based credit reporting agency.

In its annual delinquency forecast, TransUnion said that mortgage delinquency rates will likely tick up to about 6 percent through the first three months of 2012, before falling to 5 percent by the end of the year.

While still far above the pre-recession average of 1.8 percent, the numbers reflect the fact that lenders are starting to process more foreclosures. While that isn't good news for the families living in those properties, processing the huge backlog of foreclosures generated with the robo-signing debacle means there should be less negative pressure on home prices going forward.

Even with all of this better news, it could still take another few years for the housing market to shift into normal. But hope remains that 2012 will be a better year for real estate.

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