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Feature feature could quickly shake consumers' attitudes and any plans to purchase a home. Price Appreciation W ith the economy starting to work its way back, an uptick in home sales, and some decline in foreclosures, home price appreciation that started in 2012 should continue in 2013, according to Gary Painter, research director for the USC Lusk Center for Real Estate. He added that the boom and bust cycles of the last few years are largely gone, so now price appreciation should be closer to inflation— expected to be 1 to 2 percent in 2013, though there will likely be regional differences largely dictated by the availability of jobs. At this point, a look back at last year might be the best way to get any inkling of what's yet to come. Foreclosures M ost expect foreclosures to slow down a little in 2013, continuing a recent trend. But any decline may not be as positive a signal as one might think at first glance, according to Bostic. Delays in the foreclosure process are lengthening, so while there might be fewer foreclosures, there may actually be more properties somewhere in the pipeline, so the combination of foreclosures and those in process will show much less of a decline than the foreclosure figures by themselves. The Fiscal Cliff W hile these negotiations might be settled by the time of publication or shortly thereafter, how they are settled could still negatively impact the mortgage and housing markets, according to Bostic. If the negotiations drag out and 32 | The M Report any "solution" is only seen as temporary, it could mean lower ratings on U.S. credit from Moody's and Standard and Poor's, meaning higher interest rates in various sectors of the economy. Blake added that Congress has a history of kicking the can down the road, which could delay any drastic changes as a result of any fiscal cliff agreement, though it could lead to other consequences (e.g., rating agency downgrades). Painter counters that one of the reasons rates dropped in the U.S. in 2012 is that, even with the divisiveness of Congress, the economy here is still stronger than in Europe. That difference will likely continue in 2013. Other Predictions W ith Fannie Mae- and Freddie Mac-backed credit unlikely to move away from the high down payment/excellent credit mortgages any time soon, Sharga expects to see a return of non-agency loans. "There's a huge market of disenfranchised borrowers who have had some type of credit impairment [but are still good credit risks]; there need to be products to support them. Even FHA loans today usually require a 700-plus FICO score," Sharga said. Coupland expects the close scrutiny of borrowers and their finances to continue into 2013 because borrowers are likely to continue to be extremely risk averse. "Lenders will continue to be conservative for some time," Blake agreed. "There are few product choices. Vanilla [high down payment, simple mortgage product] works." Mortgage interest deductions might be capped at a lower amount than the current $1 million as part of the fiscal cliff negotiations, but Bostic doesn't expect the deduction to be eliminated entirely. If capped at $500,000 or some other level near the upper end, he's not sure what effect, if any, this would have on the higher end of the market. He explains that the deduction for upper-income earners isn't a primary driver in the purchase decision, whereas it does make a difference for firsttime homebuyers. Painter added that any significant increases in employment could lead to increased immigration, which would aid the housing and mortgage markets in and around cities with good work prospects. So which predications will make the grade and which ones will miss the mark? At this point, a look back at last year might be the best way to get any inkling of what's yet to come.