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A Look at the 2011 Housing Market
After four rough-and-tumble years, real estate is beginning to show signs of recovery in many states. Many variables are in play, however, and economic experts are brimming with conflicting predictions about the future. Here's a look.
Home Prices Were Down in December. However...
Yes, month-to-month home prices dropped in 19 out of the 20 metropolitan areas measured by the S&P/Case-Shiller report in December. But whenever you see a report on home prices there are two questions to ask yourself:
What kind of market am I looking at?
 Forty-seven percent of the homes that closed in December were distressed properties, meaning either short sales (in which the home is sold for less than the mortgage balance) or bank-owned properties, also knowns as REOs.
Short sales in particular often sell for less than a similar non-short sale home would sell for, and they also take an enormously long time to close: six months is not unusual. Which leads us to the second question:
How old is the market represented by the numbers?
Home sale data are based on closed sales, which means that they always lag the real market by at least 60 days (the shortest typical time to list, get an offer, and close on a non-short sale home). Short sales compound this factor exponentially. Many of the short sales that closed in December probably went pending in the summer, which means that the January report portrayed a market that was anywhere from 7 months to 2 months old.
The bottom line:
Home prices always lag home sales, and home sale numbers reflect buyer activity that happened months ago. Rather than relying on data that could be outdated, please call me to find out what's happening now, in our market.
Early Signs Indicate Demand is Rising.
It's early in the year to make a strong call on home buyer activity, but Zillow is reporting a 75 percent year-to-year increase in visitors to their website in January. They attribute about half of that to improvements on the site, but that still leaves plenty of room for increased home buyer demand.
In addition, home purchase mortgage applications are on the rise, and the remodeling industry (closely tied to the housing industry) is predicting a stronger year than in 2010.
The bottom line:
We typically see a surge of home buyer activity in the spring. This year, as you'll see below, increased consumer confidence could be providing an added boost.
The Job Market: Just How Bad Is It?
When the January jobless numbers came out on February 4, New York Times economic reporter David Leonhardt called it "the strangest report I have ever seen" in his 11 years of covering the data. That's because while unemployment unexpectedly dropped from 9.4 percent to 9.0 percent, non-farm payrolls rose by only 36,000, far below what had been predicted.
Mixed indicators, and rumors of a turning point.
Experts are still scrambling to explain the apparent contradiction. Did bad weather during the month of January keep workers at home and skew the non-farm payroll report downwards? Or, does the fact that the unemployment rate is determined by a much smaller survey than the payroll report make it a less reliable indicator?
No one seems to be saying for sure, but a number of experts have pointed out that newly created businesses are often not included in the payroll survey because the the Labor Department does not know they exist yet. On a large enough scale this becomes meaningful, and David Leonhardt states that at turning points in the economy, new businesses are usually responsible for a significant number of jobs.
The botttom line:
The one concept that everyone appears to agree upon is that the road to a healthy job market is going to be a long haul, and until that happens real estate will feel the effects. There are signs that could indicate a turning point, however, so let's hope we're on our way.
Consumer Confidence versus the Employment Rate
When it comes to predicting the economic future, is it possible that consumers could be more accurate than number-crunchers?
The New York Times article recently posted an interesting article by Frank Norris, entitled "From 1983, Hope for the Future." (No, the author was not extolling the virtues of poofy hair and carrying a comb in one's back pocket. :) He was explaining that the unemployment outlook in 2011 might be better than anticipated because our current economy shares some important similarities to the economy in 1983, when unemployment was expected to remain above 10 percent throughout the entire year, and instead it ended up at 8.3 percent.
In his article he also mentions this:
Consumer confidence is at an all-time high (really!)
 It may seem astounding, but when January's consumer confidence numbers (as measured by a nightly survey by Discover) showed that only 40 percent of Americans thought the economy was on a downward trend, this was the best consumer confidence rating since the survey began in 2007.
Here's an interesting quote from Frank Norris' article:
"In May 2007, the survey's first month, more than 60 percent thought the economy was getting worse. It turned out they were correct, although in those days most economic indicators were strong." (Emphasis mine.)
The bottom line:
Back then, before the 'R' word became part of our daily vocabulary, consumer confidence turned out to be a much better predictor of economic performance than the standard indicators. That doesn't mean it will be again, but January's increased confidence rate is at least a positive sign.
The article is really a worthwhile read, with information on other factors such as the GDP. I highly recommend giving it a look.
The Foreclosure Forecast
Experts appear to agree that we can expect a large inventory of foreclosure-related properties to come on the market sometime after the first quarter of 2011. This includes short sales and bank-owned properties, also known as REOs.
The bottom line:
Foreclosure-related sales, especially short sales, have a negative effect on homes prices, so expect them to create downward pressure for at least the next year.
Where are Interest Rates Headed?
No one knows for sure where mortgage interest rates are headed this year, the but general consensus appears to be "probably up." The Mortgage Bankers Association expects rates to rise from their current level in the 4.9 percent range to 5.5 percent by the end of 2011.
The bottom line:
Higher interest rates always cut some buyers out of the market. That being said, the projected rates are still extremely low from a historical perspective, and rising rates could spur potential buyers to action in the short term. Jumbo loan rates have also become more attractive since the fall, and are currently around 5.5 percent. This could be helpful to the hard-hit high end housing market.
Do you have questions about any of this information? Please call me, or just click 'Reply' to this email. I'll be happy to give you my take our local real estate market, or provide you with any other real estate advice that you need.
(What the lawyers make us say: The information in this newsletter is deemed reliable but not guaranteed. Please always consult a qualified expert before making decisions based on this content. Nothing in this article is meant to be taken as expert legal, financial, or medical advice.)
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