A year in review and a look ahead to 2011 Housing Market

Tax credit. Historically low mortgage rates. Increased affordability of homes. Those were the factors that defined the housing market in 2010. But all of that leaves us wondering, what is next for real estate. Is the worst behind us? Are we finally on the road to recovery?

2010 was a schizophrenic year, basically two years built into one. The first half we had the tax credit and saw people scurrying to get real estate transactions completed to take advantage of that unique market. The second half was more comparable to a normal market, given the economic conditions that we are faced with today. The tax credit expiration slowed down the market in the past six months in almost all price ranges.

So what’s next as we look ahead to 2011? The California Association of Realtors forecasts sales will rise about 2 percent this year to 502,000 units statewide. After two consecutive years of sharp declines, the median home price in California climbed 11.5 percent in 2010. CAR is forecasting another 2 percent bump in 2011 to $312,500.

We have not seen the dramatic increases or decreases in our market that have occurred in some areas of the country. Therefore we have not had the volatility and stress that many markets have felt. This is now a relatively balanced and flat market with slight variations based upon neighborhood and property demand.

Buyers are still somewhat hesitant to jump in. The move-up buyer isn’t especially anxious to purchase a bigger home, despite some really good prices. And we’ve lost some momentum from entry-level buyers following the end of the tax credit. Both segments of the market are impacted by high unemployment levels. If people aren’t secure in their work and in their futures, they won’t make the big-ticket purchase items like a house.

To really jumpstart the market we will need a combination of three factors: Maintain at least the current level of affordability, see a brighter economic outlook, and create improved access to credit, especially for higher-cost homes.

Appraisals and financing have been the two biggest obstacles facing buyers. Lenders continue to change the criteria used to assess fair market value. Securing financing continues to pose challenges for some buyers. Buyers who have a job, verifiable income, minimal debt and a good credit score, are typically able to secure financing. Conversely, buyers who are self-employed, cannot verify income, have challenging credit or who have large amounts of debt are having a difficult time obtaining financing.

On the plus side, mortgage rates remain near historic lows and some analysts expect them to remain low for the time being. However, most economics agree that rates may be as low as they’ll get and will eventually rise, perhaps toward 5% by the end of 2011, according to the Mortgage Bankers Association. While that bump may not be immediately alarming, it is important to point out that even just a quarter of a percent increase could significantly affect an individual’s purchasing power.

My recommendation to potential buyers is this: Assuming you are secure in your job, this may be the best opportunity to buy a primary residence or even a vacation home. These are unprecedented times when it comes to buyer opportunities. The mortgage rates are probably as low as they will get. In some communities the inventory levels are high, and prices are very attractive. It appears that everything is in alignment.

For homeowners, if you do not need to sell, meaning that you are not interested in taking advantage of the move-up market, you’re not relocating, you’re not in a financial position that requires you to sell, then this may not seem to be the best time to sell. However, there are still opportunities for you to get a fair price for your home.

You need to be realistic when pricing your home, comparing comparable homes in your neighborhood. It is also important to stage your home properly. Clean out the clutter. Make sure the home sparkles. Paint the front door. Make your home look the very best it possibly can because right now there is a lot of competition out there and if your home doesn’t shine, buyers will move on.

The upper-end is probably going to be the first area of the market to recover because that market has softened since the middle of last year. Buyers of upper-end properties appear to be patiently waiting for signs of an economic turnaround, which may mean that we have a build-up of affluent, impatient buyers. Once those buyers feel more confident that the economy is improving nationally as well as in Sacramento/Tahoe and that the employment figures improve, then these are the buyers that are going to be making a move. If that happens, then the rest of the real estate industry will be pulled forward. If I were asked which market will show the most improvement in 2011, I would have to say the luxury market.

If now is a good time for you to buy, then you may want to purchase the most home you are comfortable with owning. With interest rates at historic lows, affordability high and inventory levels plentiful, it may make sense to get in the market now. What I do know is that this unique combination won’t last forever and it’s important for consumers to be aware of that fact and act before it’s too late.

Best wishes on a healthy and prosperous new year!

 

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