Real Estate Predictions for 2012

The crystal ball is murkier than usual, between the unstable US markets and economy, the upcoming election cycle in 2012, and the continued uncertainty in the European Union (yes, it matters: a collapse in Europe would have a devastating impact on US economic markets which are intimately tied to the housing market). But enough equivocating, here are some firm predictions:

Home prices will continue to decline through the end of the second quarter in 2012, and will then roughly stabilize for the following year.

Rents will continue to rise. My official forecast: 2.5%.

We'll still be talking about shadow inventory this time next year, and we'll still have 1-2 years' shadow inventory looming over the market.

Jobs & local markets: One of the other qualities real estate markets share with politics is that all housing markets are local. National trends are all well and good, but there are some markets that basically haven't seen a recession at all (Washington D.C. comes to mind) and others that have been annihilated (Las Vegas comes to mind). As local job markets improve, local housing markets will improve, starting with the rental market and then spilling into the home sales market.

Cash will remain king: Sure, interest rates are low, but guess what? Only buyers with plenty of cash are being qualified for loans! LTV (loan-to-value) ratios are down, which mean buyers need to put down more money at the table than they did 5-10 years ago. Stay liquid, and don't over-leverage yourself – the rental industry in particular requires a hearty cash cushion, as rental income can be inconsistent, and repair expenses are unpredictable.

It's a good time to be a landlord, but only if you're not mortgaged to the hilt, and only if you have a comfortable cash cushion. With some foresight, some cash, and a little luck, 2012 will be a great year to buy and hold rental properties, as real estate prices remain low and rents continue to rise.