While the sluggish U.S. economy crept upward
in 2012, the housing market improved at a much faster rate than anyone
expected. Total home sales increased 6.3 percent in 2012, the largest increase
since 2006. Overall, 4.2 million homes sold â€“ inching closer to the average of
5.5 million a year the country experienced before the crash.
At the beginning of 2012, many experts thought the opposite would happen --
with so many foreclosures on the books and properties still underwater,
many anticipated home prices would fall or remain stagnant. CoreLogic had a
particularly-pessimistic outlook at the time: â€œThe housing market is beset by
headwinds. Itâ€™s hard to see house prices in the long run rising without income
But instead, so much negative equity on the market actually helped hard-hit
areas recover quickly by limiting sellers and keeping supply low. Demand for
rentals spiked and helped distressed properties pay the bills, keeping more of
them off the market, and mortgage servicers came through by developing
alternative ways to help borrowers stay in their homes or leave with minimal
losses to the bank.
â€œHousing was clearly one of last yearâ€™s biggest surprises,â€ wrote Mark
Fleming, chief economist at CoreLogic, in a report out today. â€œEven without significant
gains in income, housing mounted an impressive recovery in 2012.â€ This year,
Fleming projects home sales to increase another 6 percent.
Here are some major factors that drove the recovery, according to the
Decline of Real Estate Owned sales and inventory. Bank-owned (or REO) sales declined more than 20 percent to
600,000, the third consecutive year of decline. This helped boost home prices
because REOâ€™s typically sell at 20 percent less (or more) than other homes and
can also drive down prices of neighboring properties. For those REOs on the
market, the average sale price rose 3 percent over the year to $135,000 in
October 2012. â€œTraditionally, while the market looks forward to news of an
increase in home sales, a decrease in the sale of REOs indicates that the real
estate industry is transitioning to a more stable, long-term recovery,â€ writes
Rise of short sales. Short sales rose 23 percent in 2012 to
370,000 units, the highest level since the crash. Short sales typically help the
market improve by keeping homes occupied, allowing lenders to shed bad loans
from their books, and forgiving borrowers of their debt loads while limiting the
damage to their credit.
Rise of non-distressed home sales. Regular home sales
increased 11 percent to 3.2 million. While buying distressed properties has been
popular since the crash, what the market really needed was more housing starts
and homes with positive equity to pick up.
Serious delinquencies fall. Mortgages that were 90 days or
more past due fell by nearly 300,000 loans over the year, driving the
delinquency rate to 6.9 percent (from 7.4 percent in 2011). The decline was
helped by government-sponsored HAMP mortgage modifications, as well as other
foreclosure resolutions with the banks.
Home price growth is happening across diverse geographies.
Over three-fourths (78 percent) of geographical areas analyzed in the report had
year-over-year appreciation â€“ the highest share since 2006.
Foreclosures decrease by 23 percent. They went from 72,000
in November 2011 to 55,000 in November 2012.