Housing market to gradually move up in 2013

A home is offered for sale on December 4, 2012 in South Barrington, Illinois.

Now that the fiscal cliff deal has been signed into law, the next round of fiscal fights is already taking shape in Washington. First up, the battle over the debt ceiling, followed by a fight over spending, capped by a budget fight.

But Marketplace Economics Correspondent Chris Farrell says there is one bright economic spot to look forward to: the housing market. Farrel shares his predictions on just what to expect in the coming year.

On the mood of the market:

"You are starting to see increases in prices and that's feeding a sense that, 'Hey, interest rates are really low, prices are going up, and I'm noticing that for-sale signs are coming down in my neighborhood, maybe now finally is the time to make a move.' There seem to be fewer foreclosures in the market, so I think a big part of it is the psychology of the market has changed.

On the economic health of homeowners and buyers:

"The financial obligation debt ratio -- this is the number where you take all of your debt payments and you compare it to your disposable income -- peaked in 2007. Now, it's back to the level where it was in the early 1980's. We are going to be surprised by how many households are out there that actually have the ability to do some borrowing, and they are more credit-worthy. The household balance sheet has been repaired over the past five years."

On whether the housing market will return to pre-recession levels:

"We are going to hear stories in 2013 about multiple bids and all this excitement about a turn in the market, but the underlying trend will be subdued for two reasons. One, income growth is really slow -- people aren't getting wage increases and they are going to be weary about borrowing too much. The other reason is that we are already realizing the risk of homeownership."

To hear more about what's next for the housing market, click on the audio player above.

About the author

Chris Farrell is the economics editor of Marketplace Money.

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