A Year in Review and 2011: A Real Estate Forecast
Tax credit. Historically low mortgage rates. Increased affordability of homes. Those were the factors that defined the housing marketing 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? Will sales bounce back? Will the luxury market recover sooner or later than the rest of the market? Our Reality Check writer recently sat down with Coldwell Banker Residential Brokerage President Rick Turley to answer these questions and more as they discussed the 2010 housing market and what we may expect in 2011.

How would you say the housing market faired in 2010? Did it live up to your expectations or falter?
“I would call 2010 a schizophrenic year. It was basically two years built into one. The first half we had the tax credit and we saw people scurrying to get real estate transactions completed to take advantage of that unique market. The second half of the year was more comparable to a normal market, given the economic conditions that we are faced with today. Overall, I would say that the market lived up to my expectations.”

Do you feel the end of the tax credit slowed sales in the second half of the year?
“Absolutely. It has been very evident in the last six months that we have seen slower sales in almost all price ranges. For example, according to Data Quick News’ November 18 report entitled, ‘Bay Area Home Sales Fall Sharply; Median Price Dips Below Last Year,’ ‘A total of 6,122 new and resale houses and condos closed escrow in the nine-county Bay Area last month, down 3.3 percent from 6,334 in September and down 22.8 percent from 7,933 in October 2009.’ In comparison, just four months ago, following the expiration of the tax credit, Data Quick reported, ‘A total of 8,373 homes closed escrows in the nine-county Bay Area, up 1.3 percent from 8,264 in May but down 3.1 percent from 8,644 in June 2009.’ That is a 26% decline in sales when comparing June closed sales figures to October’s closed sales figures which is a statistically significant drop. Having said that, it’s really hard to compare the two periods because so much of the demand was swept up in that first half of the year. Regardless, the tax credit was very beneficial for our industry. It was what we needed to navigate the housing market through the recession.”

What do you anticipate happening in the 2011 housing market?
“I tend to agree with the California Association of Realtor’s forecast, as reported in the October 4, 2010 C.A.R. 2011 Housing Forecast, that ‘Sales in 2011 are projected to increase a lackluster 2 percent to 502,000 units compared with 492,000 units (projected) in 2010.’ The CAR report went on to note, ‘After two consecutive years of record-setting price declines, the median home price in California will climb 11.5 percent in 2010 to $306,500 and increase another 2 percent in 2011 to $312,500, according to the forecast.’ 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. What we have today is what I would describe as a relatively balanced and flat market with slight variations based upon neighborhood, property demand and property merchandising. “

What are the biggest differences between today’s housing market and that of the earlier part of this decade?
“One of the trends we are seeing now as opposed to several years ago is luxury end buyers choosing smaller homes. Today’s buyers are typically looking for a smaller home on a smaller lot; a home that is more manageable. Today’s buyers are not afraid to spend money on the best fixtures and features but they want a smaller space to do it in. Many of our upper-end buyers are also looking for energy efficient properties.”

A year ago, we sat down and you said, “In order to have a market-wide recovery, we have to be able to engage the move-up buyer.” Have we done that?
“We have not fully mobilized the move-up buyer. And at the same time, we’ve lost some strength for the entry-level buyer, following the expiration of the tax credit as reflected in the 26% drop in sales that I spoke about earlier. As we enter 2011, the improvement we would hope to see is in the mid-range, move-up buyer, which will be greatly impacted by the 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. I believe that to really jumpstart the market we will need a combination of three factors: (1) at least the current level of affordability; (2) a brighter economic outlook; and (3) improved access to credit, especially for higher-cost homes.”

What are the biggest challenges facing consumers in the real estate market right now?
“Appraisals and financing are by far the two biggest obstacles. Appraisals have been a huge challenge as the 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.”

Do you expect mortgage rates to remain low?
“I really wish I knew. Some analysts expect mortgage rates to remain low for the time being. However, Market Watch reported in its October 26, 2010 article, ‘Record-low mortgage rates will be gone in 2011: MBA’ that ‘Mortgage rates may be as low as they’ll get – rates are on course to rise, slowly moving toward 5% by the end of next year, according to the Mortgage Bankers Association’s economic forecast.’ 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.”

What do you recommend to today’s homebuyer?
“ Assuming that they are secure in their job, this may be the best opportunity to buy as much home as they are comfortable with owning. These are unprecedented times when it comes to buyer opportunities. The mortgage rates are historically low. The inventory selection is plentiful. It appears that everything is in alignment. For some, it may be a great time to purchase a second or vacation home. There is a magical feeling when you own your own home; a place to create memories. It’s important that we never lose sight of that, even during these difficult financial times.”

What do you recommend to today’s seller?
“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 be the best time to sell. However, there are still opportunities to get a fair value on the sale of your home. If you are in a position to sell, then I urge you to get in the car with your Realtor and look at the competition. Get a firsthand look at the price and condition of homes that are similar to yours. Then come back and make an educated decision about the pricing of your home. Be realistic about your price. Price it in the range that is reasonable. It’s not about what you want for the house; it’s what buyers are now willing to pay for it. 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.”

What do you foresee happening in the luxury market?
“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 turn-around 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 the Bay Area 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 has the best chance to improve in 2011, I believe the answer is the luxury market.”

What final message would you like to leave with our readers?
“You’ve got to be smart. 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.”

If you would like more information about the opportunities that are available in today’s housing market, please contact me today.