The Philadelphia real estate market is recovering slowly but steadily, a trend likely to continue into the next year. The national picture is a little brighter, depending on the region.

The year 2012 has been a good one for the U.S. housing market, which has witnessed steady gains. But this is compared to 2011, when the economy was in a recession, and that same economy is still enduring. The year of 2012 may be an improvement, but compared to what? The economy was much better from 2002 to 2007 and in the late 1990s as well. Moreover, asking prices are inching upwards; this is a slightly positive indicator that overall does not mean much and will certainly change next year because of higher taxes.

An increase in the number of building applications made nationwide is another harbinger of times to come. The number of vacancies in construction firms has increased by a hefty 59 percent, which is the highest in four years. But this recession has been ongoing for four years and many real estate experts say if America had better policies, this economy would be booming.

The Inventory Cycle

Factors that have influenced this tiny upswing in the housing market include a slight decline in unemployment rates and changes in some of the mortgage rules. A significant development in 2012 was the drastic fall in inventory by 45 percent because of lack of building and expansion. One important question now is whether inventory, which is below normal, will bottom out before starting to expand again. Low inventory can be an impediment to sales. If price gains extend into 2013, it will be an incentive for builders to forge ahead with construction and for homeowners to sell. This in turn, translates into an increase in inventory.

Many people could afford to buy homes in 2012 because it made better financial sense instead of renting at exorbitant rates. But this has begun to change as prices that had bottomed out have begun to rise. The mortgage interest deduction is part of the fiscal cliff negotiations, and if this is done away with, it can have an adverse impact on the housing market. Jason Laughlin, real estate credit consultant of rent-to-own homes listing service HomeStarSearch, says, “Local officials will have to be innovative and come up with the right solutions for their regional housing markets.” What works for a Philadelphia real estate agent, for instance, won’t work for a Las Vegas Realtor.

Positive Thinking

The sun is definitely shining on Florida’s residential real estate market, Yet clearly, in other parts of the nation, it is not shining as brightly. Here in Philadelphia, real estate markets in 2012 lagged behind national averages. Single family homes and condo-townhome units in the state are seeing appreciation in their median prices. Figures indicate that nearly half of closed sales saw cash payments being made. “Traditional sales have come to the fore, as opposed to distress sales, which were common just a few months ago,” adds Laughlin. He also adds, “It is not just one factor which is driving the housing market in the state. More jobs will lead to increase in home buyers which in turn can hike prices leading to bidding wars.” But will those jobs materialize? Well, they may in Florida because of low taxes and a business friendly environment. Pennsylvania, New York and California cannot say the same.

A Contrast in Regions

The possibility that tax breaks provided to short sellers for their forgiven debt may cease to exist, looms large on the horizon. Should this become reality, the housing market might nosedive. The latest statistics on foreclosure in the Tampa Bay, for instance, area casts an ominous shadow. Meanwhile, cities such as Philadelphia may have recovery in sight. Some observers have noted that cities like ours have finally hit rock bottom.  It can be said that a variety of markets are approaching or are making strides towards new equilibriums.  If some projections are correct, it can be said that 2013 can be expected to be a year in which a cooling of both upwards and downwards trends are evident.

The answer to stability in national housing markets seem to lie in tying up these foreclosure cases at the earliest. Foreclosure cases can drag on for years in the state and with new cases popping up regularly, a major backlog has been created and still is. It is estimated that even without any new foreclosure cases, it can take at least two years to clear the current backlog.

-J.R. Diamond