2013 Housing Outlook: What if the Consensus Is Wrong?
For this outlook piece, let's not just assume that the consensus is wrong, but let's go against the anti-consensus consensus. Double secret contrarian, if you will.
As we frequently note, betting against innovation is usually a losing bet. And during recessions, a greater portion of us are pushed towards innovation as the only means of survival.
It's no accident that the deluge of innovation and entrepreneurship of the past few years here in the Bay Area has happened against the backdrop of a dismal broader economic landscape. Humans, for all their faults, are resourceful and resilient. When finding a job isn't easy, we still have to eat. And for as depressing as it can be to call the local coffee shop "your office," new ideas spring from the necessity of earning a living.
Further, recessions wipe away bad actors and excesses. Witness the bloodletting of mortgage brokers and amateur real estate investors when the housing market collapsed. These people have not disappeared, but have been forced to reinvent themselves in more sustainable business lines that will help build a stronger foundation for future economic expansion.
Politicians abhor recessions not only because they don't understand economics, but because unemployed people generally don't vote for the incumbent. But despite their best efforts, politicians haven't been able to fully jump-start the economy. For the sake of innovation and our long term economic prospects, we applaud their failure.
8. Lending Is Loosening
Don't look now, but banks are starting to compete for mortgages based on something other than rate. The mortgage market has been so boring, so vanilla and so restrictive for years now, that mortgages have become a financial commodity.
Big banks like Wells Fargo (NYSE:WFC), Bank of America (NYSE:BAC), Citigroup (NYSE:C) and JPMorgan (NYSE:JPM) dominate the market, pushing smaller players to the sidelines. Now, as the housing market continues to mend, smaller lenders are starting to innovate. We are starting to see 40-year amortizations, interest-only products and there are even rumblings of the return of stated income loans.
To be clear, subprime isn't back and guidelines are still tight, but as the lending market begins to become an actual market again, qualified buyers currently locked out of the market will further the demand-supply imbalance we mentioned above in number 3.
9. Real Estate Tax Breaks Survived the Fiscal Cliff
As 2012 drew to a close and we watched the fiscal cliff debate drag on, the National Association of Realtors revved its lobbying machine into high gear. Specifically, it sought to preserve the mortgage interest deduction as Congress took aim at a host of generous tax breaks and loopholes.
As late as December 5, 2012, eliminating or severely curtailing the tax deduction for mortgage interest was included in some fiscal cliff solutions being bandied about.
But once again, proving just how powerful the Realtor lobby is, the fiscal cliff "deal" did not change the mortgage interest deduction and was generally seen as favorable for housing. Buyers uncertain about whether they would be able to deduct their interest expenses were able to continue their search breathing a little easier.
10. Pessimism Is Getting Old
It's hard to imagine sometimes, but the financial crisis is about to turn six years old. That is just a long time to be pessimistic. We get it, there is plenty to worry about. But humans by nature are optimistic. We get tired of thinking everything stinks all the time. We look for silver linings, we shake off fear and push forward.
It's not so much that we are forgetting the past, but moving forward. We have great problems to attend to, here at home and abroad. Nationally and locally. But our collective ability to solve problems has, thus far in the history of human evolution, proven far greater than the problems themselves.
At the risk of being called a shill for the Realtors, there is plenty to be optimistic about in 2013 when it comes to housing. And not just optimistic in the "well, the market probably won't collapse again" sense, but there are plenty of broad, demographic trends that support the thesis that housing is in for another banner year in 2013.
There are of course plenty of looming risks out there which could manifest themselves and derail this rosy picture, but as we have said many times, if you are going to bet against housing at this point, you have to understand what you are betting on. And as we wrote this time last year, "the time to be bearish on housing was 2005, not 2012."
And certainly not 2013.
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