Economic and Political Headwinds Impact Housing Market in 2011
Written by Kris Vogt, President, Sacramento-Tahoe, Coldwell Banker
With the hustle and bustle of the holiday season at full swing, we can assume that the real estate market may not be at the forefront of everyone’s minds. That’s okay for some, but it is definitely one of the most important topics on our minds. Each year around this time I like to take a moment to reflect back on the past 12 months and, more importantly, to look ahead at what may happen in 2012.
We can learn so much by examining market trends over the past year – the ups and downs of housing prices and sales volume, the impact of world events, and conflicting headlines. We can also assess which (if any) predictions from 2010 came true.
In this edition of Reality Check, we travel back through the year 2011 to concisely sum up what transpired this year and to look at what experts are saying may be in store for our local markets in 2012.
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Leslie Appleton Young, the chief economist for the California Association of Realtors, recently noted that all that California’s real estate market really needs to right itself is six straight months with no surprises. All the ingredients for a turnaround are there — record low interest rates, outstanding affordability, and very attractive home prices. But economic and political headwinds at home and abroad kept the market from really gaining much momentum this year.
To be sure, 2011 was anything but predictable. On top of the tepid economic recovery here in the U.S., there was one crisis after another around the world — the Japanese Earthquake and Tsunami, the “Arab Spring” uprising, a spike in oil prices, political standoffs on Capital Hill, the debt limit ceiling and downgrade of U.S. debt, and most recently the sovereign debt crisis in the eurozone and the subsequent stock market volatility here at home.
While California’s real estate market did show some encouraging signs of improvement in certain price segments and communities, skittish consumer confidence, the sluggish economy, stubbornly high unemployment and volatile financial markets all combined to keep home prices and sales flat in most areas.
Locally, The Sacramento Bee reported on November 17 that home sales in the Sacramento region in October — the most recent figures available — jumped 19.6 percent from a year ago, according to research by DataQuick, the La Jolla real estate information firm. But the median price edged lower as distressed home sales continued to be the lion’s share of the market.
The median sale price in Sacramento County was down 8.2 percent to $157,000, according to The Bee. Placer County saw the median drop 12 percent to $252,000. In El Dorado County, the median was down 12.2 percent to $230,000. And in Yolo County it was off 14.6 percent to $194,750.
The California Association of Realtors, in its annual forecast predicts that home sales in California will rise just 1 percent in the coming year. But as we know, real estate is really all about location. And in this challenging housing market, it’s also a matter of price segments.
Locally, entry level homes and distressed properties continue to see robust sales in many areas as bargain hunters rush to take advantage of attractive prices and, of course, low interest rates. As a result, we actually have seen inventory drop sharply this year to the lowest level in about two years.
Market wide, we are down to 4.2 months supply of homes on the market, according to MLS figures — a 31 percent decline year over year. At the same time, sales year over year market wide were up 16 percent. That trend, if it continues, could be very positive for the market and help it move back towards normalcy.
Distressed vs. Luxury Markets
One trend we’ve noticed of late is a drop in the number of bank-owned properties that are listed for sale and an increase in short sales. The reason may be that government regulations and controversies over “robo-signing” have kept more foreclosures from coming on the market. As banks put the robo-signing debacle behind them, we may see more REO properties released in 2012.
While the release of additional distressed properties could keep prices of all homes down in 2012, we suspect that strong demand by investors for these homes will probably keep prices from falling much further. We’ve seen multiple offers for many bank-owned properties, sometimes all cash offers, as investors snap up what they believe to be great bargains.
On the other end of the spectrum, the high-end market saw solid buying throughout much of 2011. But in recent weeks we have seen that interest decline, with sales dropping 8 percent in September and inventory levels rising 2 percent from the previous month.
Non-distressed mid-market
Homes that are somewhere between distressed and luxury properties – the bulk of the market here in Northern California – probably were the most challenged in 2011. One big reason for the softness is that we didn’t see very many move-up buyers trading their entry-level homes for larger, more expensive properties as they have traditionally done in the past.
Equity homeowners stayed on the sidelines, perhaps due to a lack of confidence in the housing market and the economy in general. They may have been frightened away by doom and gloom news headlines about the housing market, or maybe fear over whether they might lose their job should the economy stumble again.
This uncertainty and lack of confidence, I suspect, will continue to some degree into 2012 until there is more positive improvement in the economy.
But as we approach the new year there are glimmers of hope that the housing recovery could finally gain some traction.
Gradually we’re seeing fewer distressed sales and more “normal” transactions. Despite the recent downturn, the high-end market had a solid year in 2011, which is a good sign for the entire market.
In the past, luxury homebuyers – the so-called “smart money” – are often the first to declare a market bottom and jump back in because they have the means to do so once they are convinced the time is right. The other segments eventually follow.
Buyers are far more active right now and that, coupled with tight inventories, is helping to firm up pricing while getting serious buyers to be a little more realistic when making offers–especially in the entry-level arena. Properties priced correctly and that show well are getting a tremendous amount of traffic as well as multiple offers in some cases.
Additionally, we are finally seeing many banks starting to process short sales in a more streamlined fashion, allowing us quicker short sale approvals.
Finally, the news media are starting to join the chorus suggesting a turnaround is near and that now is the time to get back into the housing market. A recent Fortune magazine article declared, “Forget stocks. Don’t bet on gold. After four years of plunging home prices, the most attractive asset class in America is housing.” And The Wall Street Journal followed with a headline declaring, “It’s Time to buy that House.”
So, will 2012 usher in a steady, predictable economic recovery at long last or another wild rollercoaster ride of economic and political surprises? Only time will tell how it all plays out. Fasten your seat belts!
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As you might guess, this document is a compilation of information from our own efforts as REALTORS, as well as input from other REALTORS in our Coldwell Banker office. I hope it has been of value to you. Don’t hesitate to email us with any suggestions that will make this document better for you and your fellow home owners!
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