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Five Trends To Expect For The DMV's 2013 Housing Market

The DMV has emerged from the housing bust with bumps and bruises but compared to the rest of the country we're something to be jealous of. Prices are rising and homes aren't sitting on the market for as many days as they used if they're in a decent neighborhood. So this must mean that 2013 is going to be an even better year, right? We asked the man with his finger on the pulse of the local market—John Heithaus the Chief Marketing Officer of MRIS—what he sees as the coming trends for next year and he boiled it down for us after the jump. It's not all sunshine and unicorns, but there's room for hope.

The constant refrain right now is that there isn't enough inventory to meet demand. What needs to happen for that to change in 2013?
The theme is in some ways the more things change the more things stay the same, but if we're looking forward we have to take more of an interpretive view. The first thing to look at is this shadow inventory that has yet to it hit, if its ever going to. Second, there are a healthy amount of sellers who can't sell because they're under water with how much they owe on their home. These are not necessarily short sale people or late in their mortgage payments. Maybe we can call them "equity short sellers". They're holding off until they can afford to sell. It is one of the major problems, but it's hard to quantify because not many places measure it. A lot of the help out there is directed to the people who are delinquent, but how do you figure out how many people are these equity short sellers? So it's a problem both because we can't get our arms around it and because there may be a lot of units there.

Some of those equity short sellers probably paid far too much to begin with because they bought during the peak. Won't it take too long for the prices to recover?
They're waiting for the market to bail them out and the market might not be able to. People thought that the party would go on forever. But we are seeing prices come back so maybe they'll decide to take a haircut on their house but it won't be as bad as before. In talking to agents now I'm hearing more and more of them say they're seeing bidding wars come back which I think is really dangerous.

Some would say that bidding wars are a good thing and that they are a sign things are returning to normal. Why do see them as 'dangerous'?
They're irrational. I'm trained as an appraiser and so I know a lot about the reality that a house is only worth what a qualified buyer is willing to pay for it and what a lender is willing to lend on. On one side we have this qualified residential mortgage rule which talks about downpayments and what an appraiser can do with comps. Then on the other side we have five people who have decided that they absolutely have to have the house and they're throwing out prices that have nothing to do with anything other than who can bid the highest. So how is that rational? Does that mean that the market is wrong and these people are right? As long as they can get a 20% downpayment the lender will look the other way. That's troubling. It's not like the box of corn flakes at the grocery store.

With these bidding wars, if they happen more and more, and the market starts to see these crazy prices again then we'll just have another bubble. Human greed is determining the price, not the market based on comps. That can't be good for any real estate market.

A year ago around this time you said the DC area was starting from a position of strength. What word would you use to describe the market as we begin 2013?
I think limbo is probably a good word. We need more supply to come up. We need to see how the tax reform gets done. We need to see if suddenly banks put more shadow inventory on the market. We need to see if equity short sellers decide they're finally at a point where they can do it. We're in a different place than we were twelve months ago because of macro-economic changes.

For the DC area, we're the 4th largest economy in the country, and we had low unemployment and government spending. But now government spending is likely going to decrease. Unemployment in the area is going to catch up to national levels. It's not necessarily Armageddon but it's a different picture than a year ago.

We've covered the consumer, but is there anything real estate agents should pay attention to in the coming year?
I just got the 2012 National Association of Realtors buyer and seller survey that reaffirmed the Internet is so ingrained. 96% of all buyers say they start their search on the Internet and it isn't just for which house they want, it's about which agent they want to use. The Internet is more and more about how [agent] reputations are being determined. A strong social media presence is a big trend.

· All prior John Heithaus interviews [CDC]