By Gretchen Wegrich Updated on 12/18/2012

By Gretchen Wegrich

After a seemingly endless downward spiral, housing prices finally hit rock bottom during 2012. Looking ahead, 2013 could either see the cost of housing continue to rebound or drop back down to record lows.

For potential home buyers, 2012 is the first year since 2006 where year-end home prices have risen from the previous year. The outcome of this shift is an increasing sense of urgency reflecting potential buyers’ sense that home prices are finally on the upswing while mortgage rates remain low.

In recent years, buyers and sellers have continuously played the “waiting game,” watching as home prices continued to drop. Now, the relative strength of the housing market may be greater than market indicators reveal, a symptom of how different buyers’ outlook is now that prices are increasing.

In a November interview with CNBC, J.P. Morgan Chase executive James Dimon said that all signs were positive in the housing market. Not only are an increasing number of households forming, but available housing is decreasing and affordability is approaching an all time high.

The rate of homeowner vacancies during 2012 reached a low of 1.9% this fall, approaching the long term average of 1.6%. Vacancies peaked at 3% during 2008, reported Goldman Sachs. As rents continue to rise, renters are propelled to become potential buyers. Investor demand has also pumped up the housing market, a rebound effect caused by unattractive returns in other sectors and low prices in the housing market. The result is investment frenzy in locations such as Atlanta and Chicago, although investors in the hottest markets are already beginning to show more restraint. 

Fueling demand, more homeowners are expected to sell if prices continue to rise. At nationwide real estate company Redfin, chief executive Glenn Kelman said his primary focus is on increasing the company workforce from 400 to 600 by February 1. During 2012, Redfin was forced to pass on almost 50% of referrals as demand exceeded their number of available agents, who receive benefits and a salary instead of working on commission.

Gretchen Wegrich

Gretchen Wegrich is an editor at Lender411. She specializes in mortgage basics, personal finance and green living. She graduated with a bachelor's degree in writing from University of California, San Diego and previously worked at the Santa Cruz Sentinel. Contact her at gretchen@lender411com.